Computers in Banking

INTRODUCTION TO COMPUTERS

IN BANKING

INTRODUCTION:

                        Computer is a general purpose machine that converts raw facts into required information according to a set of instructions that are fed into it. It is a machine which executes an algorithm or a finite sequence of instructions to process data in order to produce the required results. The first large scale electronic computer ENIAC was developed in the year 1946 with a joint venture of Ballistic research laboratory of US army and Moore School of electrical engineering. The original objective of inventing the computers was to create fast calculating machines. But today 80% of computers are used for non-numerical purposes; hence we can perceive today computers as device acting on raw facts or data, which are either numerical or non-numerical in nature in order to produce results.

CHARACTERISTICS OF COMPUTERS:

Ø  SPEED: It can work at a very high speed without losing there accuracy, most of the instructions are carried out in less than a millionth of a second.

Ø  STORAGE: It can store data permanently on secondary storage devices such as discs, floppies etc. Data processing, a part of this data is loaded into an area known as primary storage.

Ø   ACCURACY: The accuracy of computers which processes the data is very high and consistent also depends on the method of programming or type of machine which you are using. Errors may occur in the result but due to the increased efficiency of error deducting techniques they can be minimized.

Ø  VERSATALITY: It can perform a variety of tasks provided the task to a series of logical steps.

Ø  AUTOMATION: Once the programming instructions are ready in computers internal memory, the individual instructions are automatically executed without manual intervention.

Ø  DELIGENCE: Unlike human beings, computers do not suffer from tiredness or lack of concentration etc. This factor is more important for those areas which involve highly repetitive jobs with same standard of output.

LIMITATIONS:

Ø  NEED FOR AN APPLICATION PROGRAM: As a machine, computer can do what it is programmed to do and nothing neither more nor nothing less. It can provide only on data but nothing else.

Ø  PROGRAM RELIABILITY: Sometimes a program appears to be flawless and error free, but it works properly for some period and then suddenly produces junks because of some combination of events has presented the computer with a situation for which there is no programming course of action.

Ø  PROGRAM SUITABILITY: Merely, because a computer can be programmed to do a job, doesn’t mean that can be used for any application. Using of a computer with its huge developments in software field, programming is not a tedious but still it is time consuming and expensive.

Ø  REASONING: Though technology is advanced in huge manner, still computers lack many mental capabilities such as thinking, evaluation etc which are still processed by a human being.

USES OF COMPUTERS IN ORGANISATION:

The use of computer organization is broadly classified into three categories i.e. Vertical application, personal productivity and work group computing. Many items organizations use these three areas of communication.

a.       Vertical applications are programs that perform every phase of critical business function. It is also called as mission critical. A typical example of this is the banks accounting system, which records all transactions that have occurred during the day and makes the necessary adjustments to the balances in the accounts. This system is vertical because it involves all aspects of business such as deposits, withdrawals, transfers etc.

b.       Personal productivity applications concentrate on tasks performed by individuals. Ex: Word processors that let you enter, edit and print text in various styles. Mostly such applications are run on personal computers. The wide use of such applications has reduced expensive clerical help in business & enterprises.

c.       Work group computing. It is a combination of vertical applications and personal productivity application; it is organized in order to produce some kind of corporate goal. It is made possible by networking of computers in which computers are linked together and then processes the information on co-operative basis.

COMPUTERS IN PRESENTING THE INFORMATION:

            In the present day business accurate, up-to-date and timely information is playing a huge role due to shorter product life cycles, narrow scope of opportunities etc. Apart from this to be a successful  organization by facing critical  developed new morals before the competitors does which is possible only through information and not only that getting timely information is one of the goal. Getting information is one step and more over that keeping it confidential is more important.

            Computer technology helps the organizations in preserving and presenting in excellent ways. Ex:Charts, graphs etc. It makes not only the entrepreneur but also the customer about the company products and prices.

COMPUTERS A MULTI-PURPOSE TOOL

            Until mid 60’s computers are used for a special purpose such as calculating the complex numerical tasks, but soon it’s started to contribute in more tangible ways. Computers role is not limited only to business organizations, but it has expanded even to other areas like music. Some of the related areas in which in which the computer is becoming a marvelous tool is mentioned as under.

Ø  MEDICINE & HEALTH CARE. In medicine, doctors using computers right from diagnosing to monitoring patients status during complex surgery. Using automated techniques, doctors can look inside a person’s body and study each organ in detail, which was not possible few years ago.

Ø  EDUCATION. Computers have revolutionized the education process in last few years. Infact it made education much more interesting.

Ø  ENTERTAINMENT. With the use of certain techniques like multimedia and morphing the entertainment has been completely changed. It is not wrong to state without multimedia today’s entertainment would be incomplete.

·         Multimedia. It is an area in which text, pictures, animations, sound etc., are put together.

·         Morphing. In this technique two images are mixed to get the third one.

Ø  SCIENCE. Computers are helpful to scientists in developing theory, to analyze and test the data, by which they can generate detail studies, which are helpful for common purposes.

Ø  ENGINEERING/ARCHITECTURE/MANUFACTURING. Computers are helpful for all the above mentioned categories such as CAM (Computer aided manufacturing) can be used in designing the product, ordering the parts and planning production etc.

                  In architecture computers designers use their techniques for interior design of a house or office such as placing of furniture etc., Computers helps in designing and drawing various things according to the requirements of engineers.

Q.1. Explain some applications of computers in commercial world?

·         Payroll and personal records. Payroll accounting was the first commercial area to become widely computerized. The calculations of wages and salaries involves a no. of variables but they have same no. of common factors, Which relates to the personal details of each employee such as gross pay as rate for the job, tax code, insurance etc. These facts are retained on backing store (secondary devices) along with information each time the payroll is runned, such as pay date, tax deduction for the year. Any how primary data such as hours work, overtime etc., relating to the pay packages added to the input data for the particular run.  

·         Office Automation. Initially it was perceived that changes in office operations involving computers would be limited to clerical and routine functions of repetitive nature. In the event the science and technology of computing advanced rapidly more than what the business world thought and it has grown up to such a level that it could perform all business factions in a future and more reliable way. The rapid growth of micro computer gave extreme importance to office automation from early 80’s and contributed further to the gradual evaluation of electronic office.

·         Word processing. At general office level word processing plays a importance role or particularly useful for preparing reports that may need to go through one or more revisions for producing standard letters and documents. The software provides the capability of insert or delete words, lines or paragraphs and to printout drafts at a higher speed. No matter how many revisions are required full text is typed only once. It may also include special purpose packages such as merging address lists. Purchase orders, producing a range of documents for quotations, dictionary packages with signals and corrects mis-spellings.

·         Desktop publishing. It is a major growth area in the field of office automation. This is not so surprising when you consider the vast quantities of material that business hours publish every (pamphlets, posters etc.)

·         Electronic office. There is a much talk today of the electronic office automation is posturing the evaluation of electronic office in which there is less emphasis as writing and more emphasis on retaining, manipulating and utilizing in electronic form.

·         Banking. Banks work among the first large organization to invest heavily in computing and today almost entire banking system is totally dependent on computers. In the past a large no. of account keeping was handled manually which requires huge labour force and massive volume of book keeping. Computer became necessary because there is no other way to deal with problem. In most instances, the computer is sited centrally where branches are equipped with terminal, giving them online accounting facility enabling them to interrogate the central system for information on such things as current balances, deposits etc., customers are also benefited by computerization of banks through services like ATM’s, online banking. In other words computerization of banking made easier to customers to deal with banks.

IMPACT OF COMPUTERS ON BANK

            Like in all other areas, computers have left their impact on banking industry also. The computers have not only affected the traditional banking services such as demand deposits, consumer loans, savings, they have influenced the form and extent of such services. Most of the banks have been computerized these traditional services in major branches to eliminate the difficulties of manual calculations and crediting procedures. The main advantage of banks computerization over manual book-keeping systems are increased speed and accuracy. A whole day transactions are processed and posted on the same night and reports are available on the next morning, which is not available with manual book-keeping system. Not only this even the monthly statements are sent out of time without over time working of banks personal.

            Banks developed/introduced Management Information System (MIS) to plan, operate and control commercial banking operations in an efficient manner. One more important area, which has been affected by computerization, is customer’s services. One such important service offered by banks is Automated Teller Machines (ATM’s), which are capable of dispensing cash and routine financial transactions such as deposits, transfer between accounts etc at 24 hrs a day 365 days a year. ATM’s are located either on or off bank premises.

            ‘Anywhere Branch Banking’ that is home or office banking (online/phone) are spreading fast in which customers can transact there banking activity not only when they want, but also with their convenience.  Concept of EFT (Electronic Fund Transfer) is also being at a rapid growth rate introduced by banking industry to make financial transactions and simpler cutting transactions across geo-graphical boundaries and organizational barriers. Technology is also helping banks in order to over come the barriers of national boundaries and incompatible currencies. Organizing likes Society for Worldwide Inter bank Fund Transfer (SWIFT) provide a fast, reliable and secure method of international funds transfer. To conclude, it may be said that shifting to electronic banking is inevitable at this stage; in order to keep pace with the ever-growing needs of trade, commerce both at national and international level. However, computerization should be backed up with through planning, careful organizing and co-ordination amongst various departments within a bank. Thus, computers do offer great prospects to banking but they also accentuate the need for great thinking and proper care.

ADVANTAGES OF OVER MANUAL SYSTEM

1.      Limitations of manual systems in banks.

ü  Maintenance of multiple ledgers.

ü  Errors on posting, calculations, totaling etc.

ü  Enormous amount of time is spent for balancing of books.

ü  Consolidation of accounts becomes laborious.

ü Inter bank reconciliation become tedious with millions of entries to be entered, checked, processed and matched.

Benefits of computer system. The most important advantage of computerized information system can be attributed to the following characteristics of computers: Storage, processing speed secondary capabilities. The table describes some advantages.

CAPABILITES	ADVANTAGE
Storage	1.      It can store huge quantity of data in simpler & cheaper manner and moreover it is an document form   2.      Faster retrieval of information is possible.
Processing	Computers can manipulate and analyze huge quantity of data at a very high speed, which makes easier for the company to store the data & analyze it at a faster speed, which is not possible with manual systems.
Networking	1.      Information can be shared at geographically speed places. 2.      Different companies or branches of the same company can share it. 3.      Messages can be transferred almost instantly.

Q.2. Discuss on security aspects of banks computerization/mechanization?

Introduction. Computerization of banks brought a massive change of benefits to the international community; along with the gains they even brought some operations risks.

            Banking business is due with goodwill & faith in the companies name & their strategies to satisfy their customers. Computerization of banks means vast amounts of money circulates in the form of data in computers so apart form saving the assets of banks safeguarding the computers has become prim importance to banks because the entire data is with computers. So in order to provide better services to customer’s banks has to minimize risks in computerized systems. The various risks from which any computerized system has to be protected are as under.

1.      Natural calamities.                        2.   Operational risks.

3.   Manual risks/ human errors          4.   Malicious risks.

1.      Natural catamites. These are fire, flood, earthquake etc. in entire world computers can be damaged due to the above causes or natural causes. These can be minimized if we follow the following aspects.

• Installation of fire alarms and fire fighting equipment; organizations with large computer installation should be well equipped with latest warning system such as smoke detectors etc.
• Maintaining duplicate copies of data. Companies should make backup copies of variable data and store them at different locations. There would be helpful to retrieve the data from backup devices if the primary data is affected from natural calamities. Computers generally backup the data automatically before the system is shutdown.

2.      Operational risks. These risks are generally of two types namely power failures and breakdowns.

•          Power failure. A breakdown in the power supply to have a very serious consequence, if the computer system is functioning on online mode. Sometimes it even leads to breakdown of the system through out the country and the activities are hanged up in the entire country of the particular bank.

•          Breakdowns. Computers being machines are prone to mal functions of breakdown. The effect could be either very minor or disasters. Ex: The display terminal may not function, it could be repaired or the work could carry on without being caused. If the primary storage device of the system crashes the damage would be huge as all data was lost. The real loss was disturbances in banking operations for a period of time. Physical cost of repair is insignificant as compared to the loss of business for that period of time. 

3.      Human errors. In banks, erroneous data leads to a lot of problems. It also becomes very difficult to trace out or locate an error since an enormous number of transactions are entered into computer everyday. Therefore data validation is done at each and every step of data entry. The data entered is checked for authentication either with information stored in database or with master files.

4.      Malicious Risks. The greatest threat to any computer installation being in small or large organizations eminates from its own employees or outside people who are ill to the organization or they can be called as hackers.

(a)  Damage by employees. Any organization is most vulnerable to a attack from within organization. Such an attack is most unexpected and most of the times they are hardly any safeguards to take care of such a situation.

(b)  Damage by hackers. In this age of corporate warfare, where the market place is the battle field and the large corporation are the armies, people can step to any depth to destroy the competition. You must be wondering as to who are these people called hackers if you know there professional definition – Hackers are essentially intelligent people who have a very good knowledge of computers but are unable to find suitable outlet to exhibit there knowledge or talent.

Some safety measures built into the software to fight against the above mentioned risks are as under:

•          Daily cross verification of all data entered into system. A checklist could be generated which could be checked in detail and if the entries are too many to be created, a random verification could be done. Any wrong entries in the data would mostly be deleted during the cross verification. In a computerized banking system the check list can also contain the totals of debit and credit of all transactions entered for the day. The total debits should b equal to total credit for all the data entered. If they do not tally, some transactions has been wrongly entered or some figures have been manipulated.

•          Maintenance of message log : A message log could be maintained which would keep all in coming requests to the system. It would also keep a note of the files or accounts accessed by the users. Therefore even if an outsider uses or accessed the system and manipulated the accounts, which could be seen in message log.

•          Encryption of all data: Strict monitoring to ensure that accesses to encryption keys is to be authorized persons only. 

 

Q.3. What are the different approaches to bank mechanization?

The following are various approaches to banks mechanization.

ü  Local processing with batch updates.

ü  Online updates

ü  Remote computing facility with batch inputs.

ü  Online system with mini-computer networking with main frame computers.

Ø  Local processing with batch updates. The following are the routine works, which are carried out in a typical branch banking.

a.       Cheques and vouchers meant for other banks are totaled and remitted.

b.      The Cheques received over the counter of for cleanings must be checked off and filed.

c.       The bank office has to be handled opening and closing of A/c’s.

d.      Discounting of Cheques is to be performed.

In some branches a manual front office may be there to transfer the data into computer in the back office, at the end of the day. Everyday at the end of banking hours the computer operators starts entering the data of the day’s transactions into the computer. After the processing of there data is over, the bank officials can obtain the following information.

ü  Total cash deposits and withdrawals during the day.

ü  Cash receipts and withdrawals are to be recon ciliated with the opening days balance in order to arrive next days opening balance.

ü  Balance in the customer A/c to be reconciled after taking into all the debits and credits posted in the day. 

ü  General ledger of the bank to be printed out.

ü  To check whether contingency reserve is maintained or not.

Ø  Online updates. It may be defined as the direct linking of an operation or equivalent to a computer system, so that any stimulus provided by that operation is immediately accepted by system. The following are the two examples, were online processing approach can be adopted.

a).         Foreign exchange transactions. When the bank enters into a contract to buy or sell foreign exchange on behalf of its clients the transaction is immediately entered into the computer of that authorized foreign exchange dealing branches.

b).          ATM’s.ATM’s function on the principle of online updation of data. These ATM’s are linked to a central computer, which contains the database of customer a/c’s. The database is centrally updated with the data provided from the ATM’s that are connected to it.

c).         Remote computing facility with batch inputs. In this case large computer systems installed at the head office. The HO’s gets bank information daily from all its branches, which are spread out through out the country. The inter bank transactions comprises like drafts drawn at one branch and paid at another city by the corresponding bank for which each branch needs to prepare a daily statement and send it to the head office, which orders the corresponding bank to pay money. 

In H.O. statement are consolidated and then fed in to computer systems. The data will be validated for errors, which may occur during data processing, if any errors are found the concerned branches are asked for verification.

Ø  Online system with mini-computer networking with main-frame computers. At the individual branch levels all the front office and back office transactions are processed by mini-computers. The processing at these branches are totally on-lined. At regional offices the data received from various branches are processed for any errors and then sent through main-frame computers to H.O.’s. The processed data is then transmitted to the main-frame computers at the H.O.

The above approach is called DDP ( Distributed data processing ). 

      

Q.4. What is need for audit of computerized banking system? What are the various audit controls?

A.                    Banks normally achieve effective, secure and reliable systems only through the use of appropriate balance of different control techniques. The balance selected varies from bank to bank, reflecting particular risks within each bank and the costs of related security and control procedures. A regular program of independent tests of security and control procedures by auditors helps in identifying lapses before the banking operations are seriously put to risk. The generic organizational function aimed at evaluation of assets safeguarding, data integrity, system effectiveness, and system effectiveness, and system efficiency in computerized system is termed as “Computer audit “.

Objectives of audit for computerized banking system.

ü  To verify the systems and software’s are properly installed and maintained.

ü  Monitor and supervise application development.

ü  To verify that all program changes are adequately tested and documented.

ü  To prevent and detect errors during the program execution.

ü  To verify that program documentation is maintained.

ü  To verify the continuity of operations.

 AUDIT APPROACHES.

                        Auditors are required to perform review of computer applications to evaluate accuracy of IT processing. Computer audit approaches depends on the technical skills of the auditor and sophistication of the computer center being audited. The audit procedures may consist of manual testing process or computer audit programs. These different terminologies are audit around the computer and audit through the computer.

Audit around the computer.  In this approach the auditor examines the internal control system for computer installation. On the basis of above the auditor infers about the processing carried out. He does not do direct examination of application software, for him computer is just a black box. However the systems under scrutiny in these cases are simple such as using well tested software, proper physical controls of segregation of duties. In all these cases the auditor needs to examine and satisfy himself. Auditors having little technical expertise can be trained easily for performing audit around computer. However this approach is not useful for big organizations whose systems are complex in terms of size and volume.

Audit through the computer.This approach involves the testing of computers for the use of

ü  Logical and controls existing within the system, and

ü  Records produced by system.

For adopting this approach, the auditor requires technical competence and th level of Examination depends upon the complexity of the application system being audited.

                        By examining the systems processing through this approach, the auditor can access the systems ability to cope up with changed environment.

AUDIT CONTROLS.

                        Audit controls are designed to achieve the above objectives and controls can be classified as follows.

I.      Administrative controls. These controls ensure that proper procedures are followed to maintain efficiency. An efficient administrative control system will involve the following aspects.

·         Segregation of duties between different of organization.

·         Adoption of file control measures to ensure that the data files are not used for any other unauthorized purposes.

·         Ensures that adequate physical protection and the security measures against such as fire, floods etc have been taken.

II.      Security development and documentation controls.These controls cover areas such as development, maintenance and implementation of all systems, and application software. These controls are needed to verify the completeness of system design.

III.      Procedural controls. These controls ensure that the whole of the collected data for any application is completely and accurately processed from the data entry to the final output. These controls can be classified as under.

·         Input controls. These controls consist of field checks, record checks & batch checks.

·         Processing controls. These verify that all the input data is processed and processing of each transaction is accurate.

·         Output controls. These controls relate to reconciliation of the output with input data, distribution of output and expectation of reports designed to call the users attention to possible errors or discrepancies.

IV.      System security controls. These controls reflect the need to protect computer facilities, equipment, software and data against risks of any sort. With the advent of computers auditing scope available to improve audit productivity. This is possible by an auditors participation in designed state of an application systems as well as by a systematic periodic review of the system itself to ensure that it meets current requirements.

UNIT -2

BANKING RECONCILIATION

Reports of various comities on computerization of banks & related issues.

Introduction.

            Indian banking industry has undergone it dramatic change in the size and complexity of business during the post-nationalization period. The wide network of branches as well as extensive diversification of banking functions in India brought a number of stress on its operations, due to the absence of any regulatory mechanism, back of awareness of technology & prohibitive costs of computerization, the banking industry was very slow in making use of technology for its operations.

            This had been continued till the initiative taken by RBI in 1983. It is a remarkable area in the history of banking industry for mechanization and computerization of banks. Many comities have been formed to fulfill the above criteria; the second Rangarajan committee established in the year 1988 has lead the way and the successive committees paved the way for mechanization and computerization in the Indian banking industry.

            In India, computerization programs of banks are regulated and monitored by RBI, technology played a crucial role in increasing competitive efficiency between banks in India, the approach for computerization of banks is done in phases. So that the changes are introduced in a manner in which they can absorb easily or followed easily.

Rangarajan Committee on Computerization (1985-1989):-

                        RBI setup a committee in the year 1983 under the chairmanship of Dr. Rangarajan, Deputy Governor RBI to look into the modalities of drawing up a phased plan of mechanization of banking industry covering the period 1985-89. Committee submitted its report in the year 1984 and recommended introduction of Computerisation at regional / head office, with emphasis varying from one level to another.

                        Committee observed that some degree of mechanization was essential for bringing about positive change in the basic functions of bank such as customer service, inter bank transactions etc. For this committee recommended two modules as under:-

Module 1:

            In this module committee recommends the use of micro processor based stand alone ALPM’s (Advanced Ledger Posting Machine’s) with limited memory capacity for certain functions like maintenance of primary ledgers etc. However, for different counters dedicated functional machines need to be deployed.

Module 2:

            In this module, committee recommends single micro-processor based system of large capacity to enter general ledgers, day book and generate statistical returns etc.

            The committee also recommended installation of main frame and mini computer systems at controlling offices of the banks for processing of statutory and statistical returns etc. Mechanization of foreign exchange operations, deal room operations, service branches were some of the other areas recommended for computerization.

            Initially due to restrictions put on utilization of technology and the attitude of work man’s union, the progress were very slow, but the committee recommendations certainly, put the banking industry on the firm path of using modern tools for its operations. The implementation of recommendations of the committee helped the banks improve considerably house keeping to branch level and provide better services to the customer. Mechanization also proved useful to the employees in their work environment evoking the response.

Rangarajan Committee on Computerization (1990-1994):-

The following are the silent features of the report submitted by committee

1)      The main purpose of computerization of banks should be improvement of customer service, decision making and productivity.

2)      About 2000-2500 larger branches are to be fully computerized.

3)      The following 3 different approaches are recommended.

a)      Super-micro or mini or super mini computer systems along with the required number of on-line terminals can be installed at the countries and back offices of the identified branches.

b)     Each branch will have PC’s at various counters connected through LAN, branches will also be connected through bank net with each other

c)      This alternative is heavily reliable in telecom lines within the city and between 30 cities.

4.      A small network of ATM’s can be tried out the use of ancillary equipment such as copping machines, facsimiles should be encouraged.

Unfortunately, even after submission of second report by Dr.Rangarajan, not any notable progress is achieved with regard to computerization of banking in India. There are a few ALPM installed in some branches, these are also network with regard to computerization of Zonal offices is also only little progress.

As compare to computerization of banks at international level, computerization of banks is very slow and backward. A single bank spent US$400 million every year on computers whereas money spent by all banks till today on computerization has only behalf of that.

CASH DISPENSERIES

            Cash withdrawal is the basic service rendered by the bank branches. The cash payment is made by the cashier or teller of the branch and it takes a lot of time in counting the cash. Cash dispenser is an alternate to time saving. The operations by their machine are cheaper than manual operations and this machine is cheaper and faster than that of ATM. The customer is provided coated. After completing the formalities, the machine allows the transactions for required amount.

            A cash dispenser is a financial electronic machine that is specially designed for distribution of cash in banks and institution. In a bank, it distributes the required amount of cash to the customer against a plastic card on which specific information like the account number, name etc. are magnetically coded when a customer inserts the card into this machine, if whether the card is valid or not. If the card is found to be valid, the customer is then paid the required money by this machine into which the staff  must have inserted the same at the end of transactions the machine also signals a receipt or statement of transactions are installed inside the bank premises to reduce the pressure on the manual teller counter.

Features of cash dispensers: The significant features of cash dispensaries are mentioned.

1.      It provides notes of various denominators.

2.      Operations are very faster and cheaper than manual teller operations.

3.      It ensures accuracy in transactions.

4.      It ensures improved cash security science. It is not appriable to the bandits or dacoits and theft from outside.

5.      It can be placed in the open plain environment.

6.      A payment takes nearly a few seconds.

7.      It is installed in a secure steel cabinet of 6-25 mm thickness.

8.      It is easy to use and easy to provider services.

9.      Replenishment of cash is quite simple and can be carried out during working hours.

10.  It improves the productivity of the staff for business development.

11.    It improves banker customer relations.

There are two types of such machines. They are

1.      Under the desk cash dispensers.

2.      Self service cash dispensers.

It may be noted that the 1^st cash dispenser in the world was incorporated on June 27 1967

at a bank branch of Barklays Bank of England. It was invented by a company called De-Larue Systems. It was designed to simply release the pre-packed sachets of money based on the token inserted by the customer. It was not able to count the money the notes had to be counted and put into the machine by the staff. The customers were given a token by the staff in advance, so that he could withdraw money from the cash dispenser, even at an odd hour.

AUTOMATIC TELLER MACHINES ( ATM )

            ATM is an electronic machine which is operated by the customer himself to make deposits, withdrawals and other financial transactions. ATM is an improvement in customer service. The machine is located in the bank premises or at any other centre when floating of customers is heavy.

            Soon after opening a saving account ATM card will be issued. ATM is a plastic card which bears customers name. This Card is magnetically coded and can be read by ATM machine. A customer who wishes to utilize ATM card will have access to it only. Each card holder is provided with Secret Personal Identification Number (PIN) when the customer wants to use the card, he has to insert his card in the slot of the machine, enter his pin which allows the customer to transact as per his wish.

            There are two types of ATM’s i.e. exterior and interior. Exterior ATM’s are located in various places like shopping centers; railway stations etc with or without drive in facility. When an ATM is located within bank premises is called interior ATM’s. ATM’s which are directly interactive with the banks computers are known as online ATM’s and others are known as offline ATM’s.

Structure of ATM’s:

1.      Processor. It is the main brain behind the ATM. All necessary interfaces with various ATM’s modules are handled by the processor. It receives commands through the CIP and decised on future action.

2.      Consumer Interface Panel (CIP). It consists of set of devices provided to consumer to carry on his transactions and allows the consumer to allow the data.

3.      Card Reader. Motorized card reader is provided on the ATM’s. The magnetic track on the ATM’s is read by the card reader, as soon as card inserted by the consumer. It facilitates the consumer to carry on the transactions with ATM’s.

4.      Printers. There are two types printers provided in an ATM’s one printer for consumers and other one if for journal printer. Both are not visible to the consumer. The transactions data is available in electronic media.  

5.      Dispensers. The country notes are stored in the cassettes in dispenser. It picks the currency and delivers the same to the consumer to the slot panel of consumer. The currency dispenser use both frictions pick and vacuum pick technology depending upon the technology available to ATM.

6.      Depositors. It accepts envelopes with cash or other documents and provide security for the deposited material.

Advantages of ATM’s:

1.      They provide service customers for 24*7*365 hours a day.

2.      There is a ease and privacy of operations trough self service and no need to involve banks staff in transactions.

3.      ATM’s are involved at convenient places which reduces the customers visit for bank transactions.

4.      Machine is free from human errors; it shows no sign of tiredness.

5.      Cost of maintenance is lesser and better customer service is possible.

6.      Less pressure on teller during peak period of transactions.

7.      It reduces the pressure on the bank staff.

8.      Automatic and instantaneous accounting and operating.

Disadvantages:

1.      ATM’s has to be imported from foreign countries which increase the financial pressure on banks.

2.      It demands a higher degree sophistication and literacy in part of users.

3.      ATM’s are not net worth and operate as a stand alone machine; customers will have to go to the concerned bank only.

4.      Cash dispensation is currently limited to few denominations.

5.      Minimum balance has to be maintained and daily withdrawals are limited.

Safety measures in utilizing ATM’s:

1.      Selection of site should be done carefully to avoid discomfort for the customers.

2.      Customers must be educated about privacy to be maintained in an ATM.

3.      Customers PIN should be kept secret and not be disclosed to anyone under any circumstances.

 

Note Counting Machines

            These machines are being used on Cash counters of the bank. These machines came into the picture due to counting and arranging in sections of 100’s s becoming quite tedious and error prone task. To reduce the burden on the teller, note machines are very useful. These machines are very fast in counting the currency notes. Notes or packets of notes inserted in the slot of machine which indicates the notes counted, every time the number reaches hundred machine stops and allows the bundle to be packed.

Advantages:

ü  It saves time in counting operations of notes.

ü  It saves time to cashier and customers as well.

ü  As soon as the number reaches hundred, its stops and allows for the packet to be taken out.

Disadvantages:

ü  The notes to be counted by the machine should be in fairly good condition to be counted properly.

ü  Notes in the packets should be in the same denominations (it should be checked by the cahier) otherwise it will not make any difference between a 100/- note and 50/- note.

ELECTRONIC COMMERCE (E-COMMERCE)

            Electronic commerce is an emerging concept that describes the process of buying and selling exchanging of products, services and information via computer networks including the internet. In other words e-commerce is the process of doing business online. Through this net buyer can access to any product available in the world market. The availability of product is referred to as cyber catalogue. In this catalogue, the functioning of goods, articles or machine is shown. In the cyber can set the order for the desired product through using e-commerce, through website of the vendor. Payment of the product call be made electronically using cyber cash a/c’s i.e. payment can be made in foreign currency mere at click of button. For transfer of funds Electronic Data Exchange (EDE) is used.

Definition: KALAKOTA AND WHINSTONE defines e-commerce in the following perspectives.

1.      Communication Perspective. E-Commerce is delivery of information, products or services or payment over telephone lines, computer networks or any other electronic means.

2.      Business process perspective. E-Commerce is the application of technology towards the automation of business transactions and work low.

3.      Service Perspective. E-Commerce is the tool that addresses the desire of the customer, firms and management to cut service costs while improving the quality of goods and increase speed of service delivery.

4.      Online perspective. E-commerce provides the capability of buying and selling products and information on the internet other online services.

The term commerce is viewed by some as transactions conducted between business partners. Therefore the term e-commerce sums to be firmly narrow to sum people. But it is a much broader term which does not deal with buying and selling but also with customer services and collaborate with business partners and conducts electronic transactions within a organization.

Electronic Markets

            A market is network of interactions and relationships with information, products, services and payments are exchanged. When the transactions or business takes place in a network based relations rather than in a physical building that is called as electronic market.

Benefits of e-commerce

            The global nature of technology, low cost, opportunity to reach hundreds or millions of people, interactive nature, and variety of possibilities and rapid growth of supporting infrastructures resulted in many potential benefits to the organization, individuals and society.

Benefits to organization:

1.      Electronic commerce expands the market place to national and international markets.

2.      E-Commerce decreases the cost of creating, processing, distributing, storing and retrieving paper base information.

3.      It also reduces inventories and overheads by facilitating “Pull” pull type supply chain management.

4.      Other benefits include improved image, customer service, new firm business partners, and simplified process reducing transportation costs and increasing benefits.

Benefits to consumers:

1.      EC enables customers to shop or to do other transactions 24hrs, all the year from about any location.

2.      EC provides customers with more choices, they can select from any vendor and from lore products.

3.      In some cases, especially digitized products, EC allows quick delivery.

4.      EC makes it possible to participate in virtual options.

Benefits to society:

            EC enables more individuals work at house and to do less traveling for shopping, resulting less traffic on roads in lower air pollutions.

Limitations:

1.      Lack of system security, reliability, standards and some communication protocols.

2.      There is no sufficient telecommunication band width

3.      Vendors we need special web services and other infrastructures, in addition to the network servers, which increases the expenditure economy.

4.      The cost of developing EC in house can be very high, and mistakes due to lack of experience may result in delays.

Consumer oriented application in electronic commerce.

            The most commonly discussed type of EC is business to consumers (B2C), EC in which online business attempt to reach individuals consumer B2C. EC is an online business which seeks to reach individual consumers. The following table illustrates the major business models utilized in B2C area.

Portal. It offers users powerful web search tools as well as integrated packages of contents and services such as E-Mail, Calendars, shopping and more all in one place.

E-Teller. Online retails stores often called E-Tellers. Customer can log onto internet ad check their inventory of the vendor to place an order.

Content provider. Sites that processed transactions for consumers normally by phone or mail are transaction brokers. Ex: Financial services, travel services, job placement services etc.

Business model	Variations	Examples	Descriptions	Revenue model
PORTAL	General or horizontal Vertical or special	Yahoo.com msn.com aol.com rediff.com boats.com	Offers an integrated package of services and contents such as search, news videos, chat e-mail etc. seeks to be a users home base Offers services and products of a specialized market place	Advertising, subscription fee, transaction fee. Advertising, subscription fee, transaction fee.
E-TAILER	Virtual merchant Clicks and mortar Catalogue merchant Online mail Manufacture direct	Amazon.com Walmart.com Landsn.com 99acres.com Fashionmail. Com Dell.com	Online version of retail store, where customers can shop at any home of day or night without office or home Online distribution channel for company that also has physical stores. Online version of direct mail catalogue Online version of mail Online sales made directly by the manufacturer.	Sale of goods Sale of goods Sale of goods. Sale of goods, transaction fees. Sale of goods.
Content provider		Sportsline.com Cnn.com Espnstar.com	Information and entertainment providers such as newspapers, sports sites etc offer the customer to update there knowledge.	Advertising, subscription fee, affiliate referral fee.
Transaction brokers		Etrade.com Monster.com	Processors of online sales transactions, such as stock brokers to increase customer’s productivity by helping them get things done faster and more cheaply.	Transaction fee
Market creator		Priceline.com	A web page business that uses internet technology to create markets that brings buyers and sellers together.	Transaction fee
Service provider		Exdrive.com	Companies that make money by selling users a service rather than a product.	Sales of services.
Community provider		Blackplanet. Com Above.com Ivillage.com	Sites where individuals with particular interest, hobbies and common experience can come together and compare notes.	Advertising, subscription fees, referial fees.

Types of E-Commerce. E-commerce is broadly divided into three categories namely

1.      Business to consumer (B2C)

2.      Business to business (B2B)

3.      Consumer to consumer (C2C)

Business to consumer (B2C): This is the most visible segment of EC. As the name implies in this segment the business directly sell to end consumers. Typically, the per customer volume of transactions may be low but the number of customers serviced at large. This is also referred to us E-Tailing or “Virtual store fronts” on the web sites.

            As this media offers scope for 24 hours direct retail shopping and global reach, it provides the facility to interact and provides customers information and ordering. By early ’99 EC has started to gain reputation and many businesses are planning to enter into EC.

            This segment of E-Business however requires huge investment and not only in terms of advertisement but also in the terms of hardware and software requirements for supporting for many millions of  bits of data that they deal with, not only this it even requires extensive back office setup for running these operations for the proper delivery to the customer.

Business to Business (B2B): As the name suggest this includes this medium buying and selling of products and services between business organizations through the net.

Consumer to Consumer (C2C): As the name suggests this segment of the E-Business includes business where the consumers deal with other consumers for buying and selling goods and products. This may include rare, special category or 2^nd hand goods. The most important of search site are auction sites.

Other related areas:

EDI: Electronic data interchange

SET: Secure electronic transactions

Companies discovered that EC is where the business is, but getting there require careful planning differentiating a web site from competitors, attracting customers by offering added service and managing the systems and of all E-Business called for special skills.

Portal: It offers user powerful web access tools as well as integrated package of contents and services as e-mail, calendars, shopping and more all in one place.

E-Tailor: On-line retail stores often called e-tailor. Customers can log on to internet and check the inventory of the vendor to place an order.

Content provider: They distribute information contents such as digital news, photos, video etc over the web.

Transaction broker: Sites that process transactions for consumers normally by phone or mail are transaction brokers. Ex: Financial services, bank services, job placement services etc.

Various electronic payment systems:

I.            Digital cash: Digital cash was one of the first forms of alternative payment systems developed for e-commerce. The name digital cash is infact something of a misnames. Recall our original definition of cash; legal trader created by national authorities i.e. instantly convertible to other forms of value without the intermediation of any third party. Instead of this digital cash is taking some interesting form of value storage and value exchange that have limited convertibility into the other forms of value and that too require intermediaries to convert.

Process of using digital cash:

1. Customer has to establish an account at a bank that was using the digital cash system.
2. Then customers should download digital wallet software on to his or her computer hardware and request a transfer of digital cash.
3. Once digital wallet had cash, the consumer could spend that cash at merchants who are willing to accept it.
4. The software would deduct the cash at digital wallet and transfer the cash back to the bank to confirm that it has not been spent again, or double spent.
5. The bank would then control the cancel the coins and credit the merchant accounts at the bank.

II.            Credit cards: It is a small plastic card which has the name and account number of the holder embossed on it. Generally a bank enters into an agreement with its customer and issues the customer a credit card. A card holder is also given the list of shops and establishment in cash city where the cards will be accepted in line of cash, there was a limit for the usage of customer against cash.

      The most common way of paying for electronic commerce transactions is with a credit card. The customer types the card number, expiry date and tilling address on the order form and the vendor can verify the details and be confident of payment credit card used in a conventional retail application are recorded on the transaction slip and verified by the use of a signature. In addition to this banks also allow customers CNP transaction (Customer Not Present).

      Processing a credit card invoice involves some expenses and they are also charges levied on the vendor by the banks. So through credit card small amount of transactions do not make any sense. If a credit card is being provided by a bank, also allows withdrawals of cash and charges service fee ranging from 24% to 36% per annum.

III.            Debit cards: Debit cards or cash cards can be used for e-commerce transactions in much the same way as a credit card. Very few sites offer the facility to use the debit cards, and it is also not appropriate for very small transaction and does not effort anonymity.

IV.            Stored value cards: This is the most common forms of electronic payments, the most wide spread of this technology is making it as a popular payment system in EC.

Ex: Telephone cards, exchange coupons etc.

      On a more general scale, there has been a number of scheme s to promote the stored value cards as a replacement for cash.

V.            E-Cash: The online equivalent of a stored value card is e-cash or network money. The system operates by the user transferring money from a credit card or through account into e-cash account. E-cash can then be used to make payment for EC transactions. The advantage of this system is that it can be operated cheaply as the whole operation of the system is on the net.

VI.            Delayed payments: The final option is to pay off-line. A number of sites seeking to re-assure customers, who are uncertain about the security of on-line payments, will accept credit card details by phone or fax or cheques through post. It causes extra work for the e-vendor and delay for the customer.

VII.            E-Shops: E-Shops come in all shapes and sizes. They range from, at the simplest end of the spectrum, a few simple web pages to highly complex sites offering a range of products and services including on-line ordering and payment. The full services is store needs an extensive range of facilities such as follows:

ü  Company information.

ü  Customer registration.

ü  Product data bases.

ü  Site indexes.

ü  Online order and payment systems.

ü  Sophisticated security production after sale service

ü  Feedback system.

Online Information:

            *  is an issue on the internet and it is not likely to go away. One element of such issues is knowing that an EC site is a bonafide trader and not just a scam. Further elements are:

             

1.      A site that gives a professional image.

2.      Inclusion of company information on web-site. Company information lets the optional on-line shopper know what sort of outfit the e-shop is.

Customer registration:

            E-commerce customers have to give the suppliers details about themselves, if goods are to be delivered.

Site navigation:

            Large complex websites can be slow to download and difficult to navigate. Good site design and initiative sites navigation is vital. Site navigation is aided by.

ü  Site index

ü  Site search engine

ü  Logical sequencing of facilities with clear links to the next stage in any process.

An e-commerce site must aim to appeal to the experienced user and to readily accessible to the *. 

Product data base:

            E-commerce sites sell a variety of products and the layout of products and the layout and technical design can be similarly varied. At its simplest an EC catalogue can be hard coded in HTML. The web site contains a series of product descriptions, prices and possibly a picture of product.

            Many e-commerce applications require a more sophisticated provision in the fixed format HTML page. The need for something difficult arises when there is a rapid change to product details, there is a perceived to be a need to use common data source for the e-store in the back-office function and for services that are specifies in response to customer demands.

Online orders:

            The most commonly used analog in a website is a shopping basket, which makes the customers to hours round the shop, select goods and put them in basket. Once customer satisfies with the value of goods, the customer proceeds to the check out.

E-Commerce Implementation:

            Once the strategy devised then needs to be implemented. The strategy devised implementation into two aspects namely technical implementation and business implementation. 

I.         Technical implementation:The approach to technical implementation of an e-commerce system depends upon the business objectives, business requirements and technology to be selected. It is noted that many technology to be selected. Ii is noted that many                   e-commerce systems are patched roughly together rather than designed and that is often apparent. It is important that the process of designing should consider the following:

a)      The ease of use of the system by the intended end user; it is an important factor in system design that the end users or consumers are the members of the public with limited computer literacy, and the option to switch to another website is always there if it is not satisfied.

b)      The back office systems-customers of online service quite reasonably expect a rapid response, so that the back offices systems need to be able t meet this requirement.

The design of an e-commerce system would be sensible be based on a proto typing life cycle, as the design of the user interface is crucial to the overall success of project.

II.            Business implementation:Business implementation as well as building its e-shop, the organization needs to have the following.

ü  Put in the business infrastructure to support the new EC facility.

ü  Market the new EC facility to the intended users.

Initial implementation may have limited functionality and to limited audiences. Full implementation of EC can have a considerable effect on the shape of the business and the way it does the business.

Electronic data interchange (EDI):

            The development of business through use of computer systems has essentially taken place over the last 30yrs. Initially the use of computers was limited, but with the development of technology allowed every small and medium sized entrepreneur to use their business on computers.

            The marriage of computers and telecommunication has enabled organizations to network their computers. Right now offices which are using computers depend on LAN or WAN based on their area of operations or geographical area in which they are operating. Many organizations use these networks to integrate there business processes with common customer files, interfaces to the accounting system and the like. It can be simply done by interfacing transactions but it can also involve the set-up of corporate data base for network client systems or servers. The integration of systems has been a factor in improving customer service and customer care, it has also given birth to new products and services, particularly in the new financial industry.

            However, this integration of computer systems stopped at the company’s front and back doors. Inside the company the order processing system formulated the replenishment demand, updated the stock file and make a posting to the accounting system and the print the order of paper, then post the order of the supplier with the inventible quota of delays, transcription errors and offer stained documents.

            The answer to these difficulties and insufficiencies is the Inter Organization Systems (IOS). The prime technology of IOS is EDI, development of these systems has changed the inter organization business practices in much the same way as the evolution of IT & IS           (information science). These developments of business information system can be represented in three categories or three generations.

            Development of internet enabled system is the next age in the evolution. The overall impact and implication of the development of the internet on corporate systems is still to be evaluated.

Delivery systems for e-commerce purchases

Delivery in the goods: Internet EC allows the user to order what they want, when they want, but then they have to wait until the post man arrives. That can be okay in ordinary circumstances but if the requirement is an urgent, it will not fulfill the need of the e-customer.

            The delivery system for EC purchases has to depend upon the product size, nature, emergency and the distance the product has to travel.

I.            Post: The post is relatively cheap, reasonably rapid and is useful for small packets of non-perishable products, books and CD’s are the ideal products for posting. It has been said that you can sell anything online provided it will fir through a letter box.

II.            Packet: Call these packets or parcels, there are a variety of organizations that provide a home delivery parcel service. Packet delivery services, are not that cheap and the next day delivery is requires, then there is a premium rate to pay.

III.            Local delivery: The idea that all e-commerce can be conducted from a central warehouse with minimum overheads starts to breakdown when it comes to perishable goods. A second issue with local delivery is cost. There is no real savings to an                e-commerce retailer if his business is small or restricted to a geographical area.

IV.            Collect your own: On alternative to the local delivery is for the   *         customer to collect there own goods. The product is ordered electronically paid for online and backed by the vendor, but the customer fixed it from a local store.

Electronic delivery:

            The one way to not only order, what you want, when you want, but also get it when you want. That type of delivery is called as electronic delivery.

Ex: Downloading of music videos etc, but the copy right of the downloaded product is not in your name.

No delivery:

            The final category is for those intangible products where there is no need for delivery. Ex: air tickets booked online.

            Overall the issue of delivery of electronically purchased goods is somewhat problematic. Inter organizational systems transfer’s tasks to the customers and can achieve savings for the order and payment stages of the trade cycle.

INTERNET BANKING

 

            There are types when the bank customer wants to know their bank balance or make an urgent payment without visiting a bank or at a non conventional time. This is highly impossible for the customers without the use of internet banking. In other words internet banking can solve the above mentioned problems. Internet banking reduces the cost of processing cash transactions and has the potential to reduce the overhead of the branch networks. Online banking allows customers to check their balances at any time of the day or night. The services offered by online banking are as follows:

ü  Online balance statements giving up to the minute information.

ü  Credit transfers i.e. bills can be paid on time.

ü  Maintenance of standing orders and direct debits.

Even after providing internet banking still to get cash, the account holder has to leave home and visit an ATM or a branch bank. There are security problems included in online banking such as hacking a password etc and it also needs special software downloads into your computer to access internet banking. The supply chain banking, using e-banking, reduces usage of the branch networks.

SUPPLY CHAIN MANAGAMENT

SCM means having a series of rights as mentioned below

RIGHT product

RIGHT price

RIGHT time

RIGHT type

RIGHT condition

            All the above right things are the part of B to B commerce framework. The approach of SCM transforms the way in which companies deal with their suppliers, partners and customers. The goal of SCM of to improve efficiency and profitability by providing new opportunities for exchanging information.

            SCM is a powerful tool to exchange information so as to improve customer service by fulfilling the orders quickly and minimizing excess volume of inventory. In SCM the following are the essential ingredients:

ü  Collaboration among various business partners.

ü  Co-ordination for logistics for timely delivery of goods.

ü  Co-operating suppliers and business parties.

ü  Connectivity through network to speed up the response time.

Michael Porter’s Value Chain Model:

            Micheal porter introduced this model in 1985 concerned with internal activities of the company mentioned below.

1.      In bound logistics: It involves handling of goods that are bought into the company and storing them to make available in the time of operations as required.

2.      Operations: Production process that can be represented on a detailed value chain analysis.

3.      Outbound logistics: It involves taking the products of the company and storing them if need arises and distributing these products to the customers in a timely manner.

4.      Marketing and sales: To find out the requirements of the potential customers and making them know the products and services that can be offered.

5.      Service: Requirement for installation and after sale service after the transaction is completed.

The above are the primary functions; to support these primary functions there should be supporting activities mentioned as under.

A.    Firm’s infrastructure: This is the bachelor of the business unit. It includes various activities like business management, accounting, finance, planning and other activities.

B.     Human resources: This is another major activity to match the right people for the right job. It includes recruitment, career development, training and development of workers.

C.     Technology development: Organization needs to improve the production process for being competitive. This activity contributes to the quality of the product, integrity and reliability.

D.    Procurement: This activity focuses on the supplier of the materials whether the supply of quality material is regular. It involves negotiating quality supply at a reasonable place within a reasonable time.

The genuine value chain is the beginning point for constructing a specific value chain for a company. After properly identifying the component activities and linkages there-in, each element can be analyzed there-in, each element can be analyzed in terms of cost and value so as to establish the overall efficiency of value chain.

Internet advertising: The following are the important reasons for the development of internet advertising.

1.      The television viewers migrated to the internet. The medial follows, acknowledging that the goal of any advertiser is to reach its target audience effectively and efficiently.

2.      Ad’s can be updated any time with a minimal cost. Therefore, they are always timely.

3.      Ad’s can reach very large number of potential buyers globally.

4.      Online ad’s are sometimes cheaper in comparison to newspapers, TV or radio. The later are expensive since they are determined by the space occupied how many days they are shown and many national and local television stations and newspapers they are posted.

5.      Web ad’s can effectively use the convenience of text, audio, graphics and animation.

6.      The use of internal itself is growing rapidly.

7.      Web ad’s can be interactive and targeted to special interested groups or individuals.

Advantages of internet advertising:

a)      Internet advertisements are accessed on demand 24hrs a day, 365 days in a year and costs are the same regardless of audience.

b)      Accessed primarily because of interest in the context, market segmentation.

c)      Opportunity to create one-to-one direct marketing relationship with consumer.

d)     Multimedia will increasingly create more attractive and competing ad’s.

e)      Distribution costs are low, millions of consumers, can be reached at the same time.

f)       Advertising and content can be updated supplemented or changed at any time and therefore always it is updated. Response and results of advertising are immediately measurable.

g)      Ease of logical navigation- you click where you want and spend as much time as desired there.

Disadvantages of internet advertising:

a)      No clear standards or language of measurement.

b)      Immature measurement tools.

c)      It makes viewers comparison difficult for media buyers.

d)     Difficult to measure the size of market, therefore difficult to estimate rating, share or reach and frequency.

e)      Audiences are still small in number.

Various internet advertising methods

I.         Banner: It is the most commonly used form of advertising on the internet. As you surf your way through the information super highway, banners are everywhere. The file size of the image should be about 7kb to 10kb. The smaller the file size the quicker it loads. Designer of the banner pay a lot of attention to the size of the image because long downloading times may cause the viewer to become impatient, and move on before the banner is fully displayed.

II.         Splash screens: It is an initial website page used to capture the user’s attention for a short time as a promotion to tell the user what kind of browser and other software they need to view the site. The advantage of this method over others is that one can create innovative multimedia effects or provide sufficient information for a delivery in one visit.

III.         E-Mails: Another way to advertize on the internet is to purchase e-mail addresses and the company information to those on the list. Advantage of this approach is its low cost and the ability to reach a wide variety of targeted audience.

IV.         Chat rooms: There are hundreds thousands websites having millions of chat rooms to exchange messages in the real time for participants.

A vendor frequently sponsors chat rooms. Chat capabilities can be added for free by letting software, chat vendors, post your session on their site.

 SOFTWARE AGENTS

                        Software agents are computer programs that help the user to conduct routine tasks, search and retrieve information, support decision making, and act as domain experts. Agents sense the environment and act autonomously without human intervention. This results in a significant saving of time to users. There are various types of agents, ranging from those with no software agents to learning agents, which exhibits some intelligent behavior.

            Agents are used to support many tasks in EC. One of the primary reasons for using such agents is to overcome the tremendous amount of information overload. In going through the purchasing decision process described earlier, for ex: A customer must examine large numbers of alternatives, each of which is surrounded by considerable amount of information.

            A search engine is a computer program that can automatically contact other network resources on the internet, search of specific information or keywords, and reports the results.

Unlike search engines, an software agent can do more than just “search and match”.

Software agent for information search and filtering:

Software agents can help to determine what to buy to satisfy a specific name and where to buy it. An agent that helps consumers decide what product best fit their requirements by narrowing down selection through a filtering process. Consumer specifies requirements and constraints and the system returns a list of products that best needs their desire.

Software agents for products and vendor finding:

                        Software agent helps consumer decide where to buy comparing merchant offers. A pioneering software agent for online price comparison was bargain finder. This agent was only used in online cd shopping. The agent quires the price of specific cd from a number of online vendors and returns a list of prices.

Software agent for customer services:

                        Several software agents enhance computer service by helping search as was shown earlier and by providing help to shoppers.

Learning agents:

                        A learning agent is capable of learning individual preferences and making suggestions. An example is memory agent , developed by IBM. Memory agent uses a neural network technique called associative memory, which learns by creating a knowledge base of attributes of cases.      

Q.) How internets provide necessary information for E-commerce?

            Today business can easily deliver information to employee, customer, partner and the public at large, regardless of locations. Many servers point to the web as the catalyst for this change.

                        From a physical stand point, the internet is networks of 1000 of inter connected networks included among the inter connected networks are:

                                                                                                           

1. The inter connected backbones are that have international reach.
2. A multitude of access or delivery sub networks.
3. 1000 of private and institutional networks connecting various organizational and containing much of the information of the interest

The backbones are run by Network Service Provider (NSPs), including companies like MCI, Sprint, PSI Net etc. Each backbone can handle over 300 terabytes per month. The delivery sub networks are provided by the local and regional Internet Service Provider (ISP’s)

The ISP Exchange data with the NSP’s at the network access point. The following figure shows a high level view of the inter connections among the ISP, NSP’s and the backbone

INTERNET NETWORK ARCHITECTURE:

      When a user a request from his computer, the request will travels an ISP networks, more over one or more of the back bones, and across the another ISP to the computers containing the information’s of interest. The response to the request will follow similar short of path.

  

Internet protocol: A protocol is a set of rules that determines how two computers communicate with one another over a network.

TCP/IP: A protocol that solves the global inter-networking problem is the transmission control protocol by internet protocol (TCP/IP). This means any computer or system connected to the internet runs TCP/IP. This is the only thing, these computers and systems, share in common.

Internet client/server application: End users interact with the internet through one of several clients by server applications. As the name suggests in a client or server application there are two major classes of software.

a)      Client software: Usually residing on end users desktop and providing navigation and display.

b)      Server software: usually residing on a work station or server-class (mission) and providing back end data access services.

 UNIT-3

 

HOME BANKING

            Toady banking business are more affluent and technologically sophisticated then ever before. With the adoption of electronic systems and the connectivity between customers and the banks computer by means of telecommunications and modems it has become possible for a customer to interact with the bank round the clock, without coming to the bank personally or physically. Such facilities provided by the bank are known as tele-banking or remote banking facility. Home banking is becoming popular in India both in personal and corporate banking sector.

a)      Corporate Banking: Corporate treasurers require a great deal of information about their various bank a/c’s about the current balances in each account, history of recent transaction etc. This problem becomes compounded when three or four banks or even more with whom they have to deal. They have to keep the track of balances in each of the accounts, with each of the banks and thus manage their money. This demand of corporate treasurers has to be met by the banks themselves. The banks thus needed an electronic cash management system, which they could sell to their corporate clients.

Banks link is one such system developed by Chemical Banking Corporation, which links networks of various branches to corporate treasurers to provide various offers like balance reporting, previous and current day balances etc. for which banks should have license to operate it and corporate treasurers should have sub-license with the bank to link up with the system.

Indian Scenario: In India, a couple of banks have introduced corporate banking, which enables the customers to get updated information on their accounts. 1998 Rangarajan committee suggested to expand the communication network which will able to provide this facility to large customers and enables banks to keep pace with the demands of modern business.

b)     Personal Banking: By using the tele-banking facility, customers can dial up the branch designated telephone number, which is connected to the computer and he or she by dialing his/her identification number, will be able to get the connectivity to the branches designated computer. Through which a customer can access to his balances and can also place order for statement of account, cheque books and a few selected services through tele-banking.

c)      Telephone Banking: The first step in home banking was to offer clients a simple service i.e. telephone banking, to this service they can enquire about various financial transactions but no other services such as payment of cash etc was provided. These services are provided in three types.

• Manual approach: In this type answers for queries are provided by human operator who answers the telephone calls, thus the operator have to be specially trained so as to make the telephone conversation pleasant one to the customers. They also should be able to put in                     especially if the bank wishes to offer the services even beyond working hours.

• Computerized Voice Response in Telephone Banking: Instead of human operators, a machine answers the customer queries. For this purpose, sophisticated voice response systems are being developed. Introduction of such systems obiates the need for having skilled operators for answering various questions.

• Touch Tone Telephone Banking: In this system the customers, has to keep data using the dialing buttons which can be recognized by the computer, and answers are provided electronically for simple questions such as balance enquiry etc and the answers are in manual for typical problem such as reasons for dishonoring a cheque.

d)     Online banking: ATM’s which are interactive with the host computers of the branches on every transaction are known as online computers. Those which are not provided with the above service it is known as off line mode.

e)      Batch updates:

1)      Online updates: When the transaction is entered by the user the computer acknowledges it and updates the related files which are affected by the particular transaction, before the next transaction is produced then it is called online updates.

2)      Batch updates: The transactions done by a user at the end of the day, by the back office staff then it is known as batch updates.

 

ELECTRONIC FUNDS TRANSFER

Introduction

            Processing and execution of payment instructions is one of the statutory obligations of the banks. The use of computers and communications has now changed the whole mechanism of funds transfer and settlement process into fast and automated EFT systems.

Evolution of EFT systems

            Till about three decades ago, the entire payment system in banking the world over was paper based requiring human interventions at all stages of the payment mechanism. However, the explosive advancements in the computers and communication facilities and their application to banking have brought about a sea change in the funds transfer system.

            During this period, banking has shown remarkable growth in the volume of payment instructions passing through its traditional funds transfer system. As payment volumes increased, the procedures and the accompanying paperwork and physical burden became overwhelming. An additional problem complicating the flow of funds was that books of account were closed at a fixed hour each afternoon, and banks could not be sure of some receipts until nearly closing t9ime. Thus the banks made their credit decisions as late as possible before dispatching a check to the final payment clearing house. This delay crowded an inordinate number of payments into the final clearing and slowed the entire payment process.

            All these were crucial factors for the banks to look for alternative methods of processing payment instructions requiring speedier cheque sorting and processing techniques. The use of Magnetic Ink Character Recognition Technology (MICR) for processing of cheques was the first step towards mechanization if the cheque clearing system which later paved the way for introduction of EFT systems, pioneered first in USA. MICR technology was introduced in USAas per recommendations of the committee on mechanization of check handling constituted by the American Bankers Association in the year 1954.

            MICR technology involves magnetically encoding the requisite information like the unique code of the paying branch, instrument number, instrument type, and amount etc. on a specially designed strip on the face of the instrument. The encoded information is machine readable and is captured on the computers using Reader-Sorters which also sort the cheques bank-wise/branch-wise etc.

            In 1968 the special committee on Paperless Entries (SCOPE), set up in USA examined the concept of an automated clearing house. It was in 1972 that the first Automated Clearing House (ACH) started in San Francisco, USA.

            Another significant development during this period was the emergence of SWIFT, the society for worldwide inter-bank financial telecommunications, setup in the year 1973. The banks started making use of the networked systems and Automated Teller Machines (ATM’s) started as becoming quite popular form of consumer EFTS during 1976 onwards. The final development in the EFT system has been the private card systems like the Visa Card which employs EFT as an alternative payment system.

Role of SWIFT in EFT:

            The aim of EFT is to see that cash payments are reduced to some means with respect to banks. Quick communication facilities are needed to transfer the information to its destination earlier. If this has been delayed interbank reconciliation would be difficult. Telex or fax machine were used to transmit information which was very costly affair.

SWIFT: Global system for funds transfer.

            It handles transmission on an international basis through several tele-communication switches, which is not a costly affair, when compared to telex or fax.

            India is the 74^thcountry to become a user member of SWIFT in December 1991, RBI and 49 other commercial banks initially become members of SWIFT. Right now there are 4600 members from 133 countries in SWIFT. On an average about 2.2 million messages are handled by SWIFT per day.

Organization:

            SWIFT is organized as a co-operative society for the collective benefits of its members. Its headquarters is in             in Belgium, share ownership is allocated in proportion to traffic volume sent on the system and is periodically reviewed to reflect actual system usage  country or group of countries accounting for over 1.5% of total system traffic is entitled to nominate a board member.

Relevance:

            The international financial services industry is witnessing increasing competition, growing volumes and challenging customer demands for faster and more economic services. SWIFT has proven over the years that in building a common service design for and with its member banks, the cost, for them can be brought down to extremely low levels while maintaining highest degree of security. SWIFT’s objective is to provide users with opportunities to reduce risks and costs through standardization of methods and procedure services:

ü  Customer transfer

ü  Funds transfer from one bank to another

ü  Preparation of credit or debit advices

ü  Preparation of statement of accounts

ü  Confirmation in respect of foreign exchange and money market.

ü  Inter banks securities trading.

ü  Reporting of balances.

ü  Payment systems.

SWIFT provides services and more importantly, procedures that are understandable to banking staff throughout the world by the use of standard message formats that communicate information in a manner which is recognized and accepted.

These message formats are developed by group of specialists from member banks. SWIFT standards can achieve client satisfaction through

ü  Faster customer service

ü  Reduced transaction errors and misunderstandings

ü  Lower transmission costs

ü  Greater efficiency in transaction preparing and handling.

ü  Better statistics.

The combined advantages of reduced cost, higher speed and rigid control are of special interest to all banks.

Benefits:

·         SWIFT services are available to all its member banks, 24 hrs a day.

·         Reduced operating costs, through greater staff productivity.

·         It helps to provide better service to customers.

·         The system has built in security measures for authentication of messages.

·         This can be used as a cost-effective means of communication for globalizing operations of banks.

EFT IN INDIAN CONTEXT / BANK NET

            EFT concept implemented in India with the help of BANKNET. Bank net is the 1^stnational level network in India which is commissioned in February 1991. It is a communication network established by RBI on the basis of recommendations of the committee appointed by RBI under the chairmanship of T.A.N. Iyer. It is in the implementation stage. Initially, it will provide communication among 7 centers i.e. Bombay, Chennai, Kolkata, Delhi, Nagpur, Bangalore, Hyderabad. RBI, 26 public sector banks, Indian banks association and discount and finance house of India have joined the network.

Application of Bank Net:

ü  EFT, Customers can draw cash against there deposits at any branch of the bank, remit funds immediately to any branch in the network.

ü  Inter bank funds transfer can be quickly settled.

ü  Automated clearing services provide faster credit to the customers.

ü  Database of the common interest can be maintained.

ü  Sales or purchase of foreign currency and related matters can be quickly settled.

ü  Data transmission between RBI and Commercial Bank.

ü  It provides across the SWIFT international network from different centers in the country.

ü  It includes electronic mail system.

Hardware of Bank Net:

            The required hardware includes personal computers, mini computers and main frames are connected in the network. The communication is through Catalyx-25 packets switching network. Other equipment used includes communication controls, Packet Assembler-Disassembler (PAD) and modems.

            One of the key elements of the system is telephone lines between various posts. The actual data is converted from digital signals to analog signals through a modem. The analog signals are transmitted on telephone lines. At the receiving end, a corresponding modem          reconverts the analog signals to digital, which can be understood by the computer.

PROCESS OF MANUAL CLEARING

            The Rangarajan committee 1984 has pointed out that the main function of a banking industry as a financial intermediary is implemented largely through cheques and such other instruments drawn on the banks. Clearing of cheques has become an extremely important are. Reduction in clearing time results in improving customers satisfactions. If the clearance of cheque is delayed, it may provide to cause troubles to marketing company and individual. If the entire work of clearing is handed manually, the cheques would be credited after a delay of 3-6 weeks. This means the funds are not available to the company during this period and it may in term, have to borrow the same money from the banks to keep its operations running. Effectively the company is paying interest to huge money which belongs to it in the first place.

Process of manual clearing:

a)      For local cheques:

Stage 1: outward clearing collecting bank

·            Cheque deposited by an account holder in bank branch.

·      Sorting of all the cheques and their listing and preparing bank wise packets and consolidation of amounts.

·      Transfer of packets with delivery statements to local main clearing branch of bank.

·      Branch wise deliveries verify and bank wise packets and delivery statements prepared.

·      Transfer to clearing house.

Stage 2: At the clearing house

·      Exchange of instruments and delivered by banks at the clearing house.

·      Generation of listing of bank wise deliveries and amounts to be received.

·      Working a bank by the bank position of payable and receivable.

·      Working out bank wise net payables/receivables and settlement.

Stage 3: Inward clearing ( At paying Bank )

·      Receipt of instruments delivered by banks at the clearing house.

·      Verification branch wise sorting, consolidation in balancing and summarizing.

·      Transfer of instruments to respective branches.

·      Verification of instruments received and passing the entries.

·      Recording of entries in the books of accounts.

·       Returning of unpayable cheques through step1 in stage 1

b)      For the outstation cheques:

The following steps are involved in clearing of outstation cheques in the manual process.

·      Deposit of the cheque by the customer.

·      Bank wise and centre wise sorting.

·      Dispatch of cheques to the regional collection centers or local main clearing branches in the respective centers.

·      Adjustment of transaction through debit/credit on inter-branch accounts.

·      Presentation of the cheques at the local clearing house.

·      Sending advice to the originating branches on realization or non-realization of cheques and adjustment of the entries through credit/debit on inter-branch accounts. 

·      Crediting the proceeds to the customer’s accounts or returning the non-realized cheques to the customers.

 

MICR (Magnetic Ink Character Recognizer)

            MICR is essentially a technology cheque processing mechanism. For this purpose the cheques should be standardized in size and it has to meet the following characteristics, then only it can be considered as MICR cheques.

Characteristics:

1.      Standard size: Two standard sizes are used for MICR cheques i.e. for savings and current a/c’s respectively.

a)      Size 1:For saving bank a/c the size of cheque should be 6.5” * 2.75”.

b)     Size 2:For current a/c, cash credit a/c’s, demand drafts the common size of MICR cheque should be 8” * 3.75”.

Size 1 cheques are applicable even for gift cheques and traveler cheques.

2.      Clear band: Each MICR cheque has a clear band width of 5/8” across the lower edges of the cheque. Certain numbers are pre coded on the bottom using special ink that contains magnetizable particles of iron oxide. This pre-coding is done with the help of an instrument called the encoder. The various codes are as below:

 

Field 1 {6 Digits}: Cheque serial number.

Field 2 {9 Digits} {Sort Code Field}:which uniquely describes city, bank and branch on which the cheque is drawn.

Area 2(a) {3 digits}: This code describes the city on which the cheque is drawn. For ex: 400 represent Mumbai, 700 Kolkata, and 110 Delhi etc.

Area 2(b) {3 digits}: This code represents or denotes on which bank the cheque has been drawn. For ex: 012 for BOB etc.

Area 2(c) {3 digits}: This code indicates the branch on which the cheque has been drawn. Each branch of the bank in any MICR center is given a unique code.

Field 3 {6 Digits} – A/c Number:At present, this field blank neither                         

Coding of this field would be necessary once                      of the country process is taken up for computerization is taken up for computerization is done. When this done, the paying bank branch would be able to directly debit the customers a/c from the MICR data, without having to perform any further inputs

Field 4 {2 Digits}: This represents transaction which denotes the type of instrument such as savings bank cheques, current a/c cheque, bankers cheque, DD etc.

Field 5 {3 Digits} – Amount:This is encoded by the collecting branch with the help of encoder.

Special symbols: Notice certain symbols used as the above cheque before and after area 1 and area 2. These symbols convey instructions to the equipment called reader sorter. For ex: The symbols before and after the area 1 indicate on us.

TECHNOLOGY OF MICR: Two specialized machines are used for the fast clearing of cheques which are explained in detail as below

1.      Encoder:It is a small machine which will perform the following transactions

·            To encode the amount in special ink which can be read by the reader sorter.

·            To print the interest of all instruments that has been encoded along with the totals.

·            To place a clearing and endorsement stamp at the back side of the instrument.

2.      Reader sorter: After encoding the cheques are accumulated into batches and placed in the input            of a reader sorter unit. As they enter the reading unit, the cheques pass through a magnetic field which causes the particles in the ink being magnetized.

Reader heads                 characters as they pass through the reading unit. The data read be entered directly into CPU, or they can be transferred to the magnetic tape for later processing.

Benefits of MICR technology:

ü  It takes less time to clearance of cheques, which results in tremendous satisfaction for the customers.

ü  Chances of errors are minimized because the instruments are read by the machines.

ü  The transfer settlement of funds between the banks is fast and easy.

ü  Reduces the burden on bank staff members.

ü  The work of clearing becomes easy.

Precautions to be observed in MICR technology:

ü  MICR instruments must not be folded.

ü  Nothing should be written on the band of codes.

ü  No rubber stamp should be fixed on the band line.

ü  Pins, stapler and gum must be avoided.

 

     OPTICAL CHARACTER READER (OCR)

                        This is a electronic system that permits the direct reading of any printed character. Introduction of this system enables an organization to eliminate or reduce input key difficulty. These devices are designed to recognize and interpret the hand made marks and characters, machine printed characters and special bar codes. Most of the OCR’s scan the printed matter with a photo electronic device called a scanner that recognizes the characters by the absorption or reflection of the light on document.

                        Optical readers can also recognize the data coded in the form of dark and light bars. Bar codes are commonly used to identify merchandise in retail stores. The primary advantage of OCR is that it eliminates some of the duplicates of the human effort required to get data into the computer.

Advantages:

ü  It permits the direct reading if any printed character.