UNIT – 2

TECHNOLOGY IN BANKING OPERATIONS

RECENT TECHNOLOGICAL DEVELOPMENTS IN BANKING

SECTOR IN INDIA:

1. Automated Teller Machines

2. Debit cards
3. Credit cards
4. Equated Monthly Instalments / EMI’s
5. Electronic Funds Transfer
6. Electronic Clearing services

1. AUTOMATED TELLER MACHINES:

An automated teller machine (ATM) or automatic banking machine
(ABM) is a computerized telecommunications device that provides
the clients of a financial institution with access to financial
transactions in a public space without the need for a cashier, human
clerk or bank teller.

On most modern ATMs, the customer is identified by inserting a

plastic ATM card with a magnetic stripe or a plastic smart card with a
chip that contains a unique card number and some security
information such as an expiration date or CVVC (CVV).
Authentication is provided by the customer entering a personal
identification number (PIN).
ATMs are known by various other names including Automated
Transaction Machine, automated banking machine, cash point (in
Britain), money machine, bank machine, cash machine, hole-in-the-
wall, Bancomat (in various countries in Europe and Russia),
Multibank (after a registered trade mark, in Portugal), and Any Time
Money (in India).

Using an ATM, customers can access their bank accounts in order to

make cash withdrawals (or credit card cash advances) and check their
account balances as well as purchase cell phone prepaid credit.

2. DEBIT CARDS:

A debit card (also known as a bank card or check card) is a plastic

card that provides an alternative payment method to cash when
making purchases. Functionally, it can be called an electronic cheque,
as the funds are withdrawn directly from either the bank account or
from the remaining balance on the card. In some cases, the cards are
designed exclusively for use on the Internet, and so there is no
physical card.

The use of debit cards has become widespread in many countries and
has overtaken the cheque and in some instances cash transactions by
volume. Like credit cards, debit cards are used widely for telephone
and Internet purchases, and unlike credit cards the funds are
transferred from the bearer’s bank account instead of having the
bearer to pay back on a later date.
Debit cards may also allow for instant withdrawal of cash, acting as
the ATM card for withdrawing cash and as a cheque guarantee card.
Merchants may also offer “cash back”/”cash out” facilities to
customers, where a customer can withdraw cash along with their
purchase.

3. CREDIT CARDS:
A credit card is part of a system of payments named after the small
plastic card issued to users of the system. It is a card entitling its
holder to buy goods and services based on the holder’s promise to pay
for these goods and services.
The issuer of the card grants a line of credit to the consumer (or the
user) from which the user can borrow money for payment to a
merchant or as a cash advance to the user. Usage of the term “credit
card” to imply a credit card account is a metonym.

4. EQUATED MONTHLY INSTALLMENTS:

A fixed payment amount made by a borrower to a lender at a
specified date each calendar month. Equated monthly instalments are
used to pay off both interest and principal each month, so that over a
specified number of years, the loan is paid off in full.
With most common types of loans, such as real estate mortgages, the
borrower makes fixed periodic payments to the lender over the course
of several years with the goal of retiring the loan. EMIs differ from
variable payment plans, in which the borrower is able to pay higher
payment amounts at his or her discretion. In EMI plans, borrowers are
usually only allowed one fixed payment amount each month.

5. ELECTRONIC FUNDS TRANSFER (EFT):

Electronic Funds Transfer or EFT refers to the computer-based

systems used to perform financial transactions electronically. A
process allowing the lender or the borrower to transfer payments
electronically between bank accounts or to a lender.

The term is used for a number of different concepts:

I. Cardholder-initiated transactions, where a cardholder makes use of
a payment card

II. Direct deposit payroll payments for a business to its employees,

possibly via a payroll services company

III. Direct debit payments from customer to business, where the

transaction is initiated by the business with customer permission.

IV. Electronic bill payment in online banking, which may be

delivered by EFT or paper check Transactions involving stored value
of electronic money, possibly in a private currency

V. Wire transfer via an international banking network (generally

carries a higher fee)

VI. Electronic Benefit Transfer

6. ELECTRONIC CLEARING SERVICES (ECS):

It is a mode of electronic funds transfer from one bank account to

another bank account using the services of a Clearing House. This is
normally for bulk transfers from one account to many accounts or
vice-versa. This can be used both for making payments like
distribution of dividend, interest, salary, pension, etc. by institutions
or for collection of amounts for purposes such as payments to utility
companies like telephone, electricity, or charges such as house tax,
water tax, etc or for loan instalments of financial institutions/banks or
regular investments of persons.

There are two types of ECS called ECS (Credit) and ECS (Debit).

1. ECS (Credit) is used for affording credit to a large number of

beneficiaries by raising a single debit to an account, such as dividend,
interest or salary payment.
2. ECS (Debit) is used for raising debits to a number of accounts of
consumers/ account holders for crediting a particular institution.

10 EMERGING BANKING TRENDS IN 2024

1. Artificial Intelligence
2. Open Banking
3. Hyper-Personalized Banking
4. Block chain Technology
5. Banking of Things
6. Cyber security
7. Immersive Technologies
8. Banking Process Automation
9. Neo-banking
10. Quantum Computing
1. Artificial Intelligence

AI banking provides high-quality banking services to customers and

saves operating costs. AI-powered tools, such as virtual assistants and
chat bots, automate customer service interactions. Additionally, they
provide customers with account information and resolve account-
related queries. AI-based biometrics detect fraud and improve
security, as well as enhance AML applications and KYC checks.

Further, machine learning (ML) algorithms power alternate credit

score modelling that aids banks in making better lending decisions.
Computer vision-enabled tools also simplify document analysis,
which assists banks in customer on boarding and compliance
management. Moreover, AI analyses massive financial datasets to
improve risk assessment and financial forecasting, improving
investing decisions.

2. Open Banking

Open banking connects non-banking financial companies (NBFCs)

and banks to provide customers with custom and more accessible
financial services. Banking application programming interfaces
(APIs) enable third-party developers to securely access customer
financial data without compromising data compliance. Open banking
also includes account aggregators that allow customers to manage all
their banking accounts through a single platform.

APIs from banks also allow NBFCs to integrate banking functionality

into their apps and services. This embedded banking enables NBFCs
to verify customer information automatically, reducing the need for
manual verification and accelerating customer verification. Moreover,
open banking enables banking-as-a-service (BaaS) that allows banks
to reach new customers through third parties and increase their
revenue.

3. Hyper-Personalized Banking

Providing a personalized banking experience improves customer

retention. That is why banks now leverage various strategies and
technologies, such as buy now pay later (BNPL), Omni channel
banking, and financial advisory tools, to tailor their offerings. For
instance, Omni channel banking provides a unified, customer-centric
view of their financial information while allowing them to interact
with banks via multiple channels.

Additionally, wealth management and financial advisory tools

provide customized advice and investment guides, improving investor
and customer satisfaction. Banks thus leverage AI and machine
learning to provide such real-time personalized financial
recommendations.

4. Block chain Banking

Block chain provides tamper-proof records of all financial

transactions and improves transactional transparency and security.
Further, it improves trade efficiency through transaction automation
as well as streamlines manual and paper-based operations. Smart
contracts automate financial transactions and improve the
performance of financial contracts.

Smart contracts also eliminate the need for intermediaries and enable
peer-to-peer (P2P) payments. This greatly enhances the speed and
efficiency of transactions, especially cross-border payments.
Moreover, decentralized finance (DeFi) leverages block chain to
make financial services more accessible while lowering transaction
fees.

5. Banking of Things

The banking industry is adopting IoT for efficient data collection.

This automates data acquisition for streamlining banking processes,
such as KYC and lending, to enable real-time event response. For
example, IoT-enabled smart automated teller machines (ATMs) send
alerts for low cash levels and malfunctions, ensuring timely
maintenance.
Also, IoT-enabled digital wallets integrated into mobile phones and
smart watches enable customers to make purchases. Since connected
devices deliver customer-specific data in real-time, IoT in banking
aids fraud detection and, in turn, mitigates loss.

6. Cyber security

The banking industry handles massive amounts of sensitive customer

and transactional data. This makes its IT infrastructure a popular
target for cybercriminals. To tackle this, start-ups provide security
protocols and data compliance management tailored for banking
systems. Such cyber security solutions enable banks to safeguard
sensitive data.

Data encryption tools further extend this, reducing the risks of data
leaks. AI-powered fraud detection identifies and prevents suspicious
activities such as identity theft and phishing scams. Banks also
leverage anti-hacking software to protect networks from unauthorized
access. These features help banks in improving threat detection and
response.

7. Immersive Technologies

Immersive technologies deliver personalized and interactive customer

experience. Augmented reality (AR) and virtual reality (VR) optimize
the interactions between banks and customers. VR allows banks to
train employees on various banking procedures, products, and
regulations in interactive environments. For instance, these
technologies power virtual showrooms, where customers explore
vehicles in a virtual environment and banks streamline the loan
application process.
8. Banking Process Automation

Banks automate repetitive and time-consuming tasks through the use

of software robots. They provide a competitive advantage to banks as
their employees are able to focus on more critical tasks. Further,
RPA-based accounts payable solutions automate tasks like invoice
processing, payment approvals, and reconciliation. Banking process
automation (BPA) also involves automating mortgage processing,
including evaluating and disbursing loans to customers.

9. Neo banking

Neo banking enables a digital-only presence for banks, minimizing

capital and operating expenses. It offers a seamless and integrated
banking experience to customers through cloud computing, open API,
and more. Additionally, neo banks support a range of services from
automated reconciliation and payroll management to integrated
workflow management.

Digital-only banks ensure customer convenience by enabling them to

access services on-demand and across platforms. Neo banks also
feature lower fees as they require less capital and operational
expenses compared to traditional banks.

10. Quantum Computing

With traditional computing, processing huge amounts of data is

resource and time-intensive. Quantum computing solves this problem
by offering faster, more efficient, and more secure computing. It
assists banks in optimizing their portfolios and making accurate
financial predictions.

Start-ups are thus developing cost-effective quantum computers. They

assist banks in derivative pricing and improving their cyber security
programs
USAGE AND IMPACT OF IT IN BANKING:
Some of the IT devices used in the Banking Sector:
The banking sector is going through a rapid transformation to meet
the competition and challenges of the time. Needless to say, the IT
security is the new differentiator in the performance of the banks.
With the latest devices, technology has provided a new framework for
the banking sector to cut the cost of global fund transfer.
Here are some of the information technology devices used in the
banking sector:

 Electronic Payment and Settlement System: This is the most

common media for clearing interbank cheques. Initially, the clearing
process used to be done through cash and this device is the
replacement of the money.
 MICR Technology: This device has helped the banks to
overcome the limitations of clearing cheques within the working
hours. The tool helps in the quick credit of money in the customers’
accounts.
 EFT: Through the electronic fund transfer mechanism works for
nation wide retail fund transfer between networked branches of banks
in a secured way..
 Phone Banking: The customers can access their accounts for
non-cash related requirements through an automated voice recorder.
 Internet Banking: The internet banking helped the customers
to do the transactions through the bank website with the help of an
active internet connection. The customers can access to all the bank
products from anywhere.

JOB OPPORTUNITIES IN BANKING INDUSTRY:

 Managers

 Assistant Managers

 Senior Managers
 Chief Managers

 Assistant General Managers

 Deputy General Managers

 General Manager

 Clerks

 Officers

IDRBT-
Institute for Development & Research in Banking Technology
IDRBT issues Digital Certificates licensed by the Controller of
Certifying Authority, Government of India. IDBRT’s mission is to
envision and foresee the technology requirements of the Indian
banking and financial sector and Research & Develop the required
technologies

THE ROLE OF IDRBT IN BANKING

1. To provide certifying authority for Indian Banking and Financial
sector.
2. IDRBT issues Digital Certificates licensed by the Controller of
Certifying Authority, Government of India.
3. IDBRT’s mission is to envision and foresee the technology
requirements of the Indian banking and financial sector and Research
& Develop the required technologies.
4. IDBRT understands the emerging global technology trends and
their implications and guides the Indian Banking and Financial
Sector.
5. They play a catalytic role in developing Banking Technology as
a recognized discipline of study.
6. They create a pool of Banking Technology professionals
through innovative and quality educational initiatives.
E-banking
E-banking is a creation planned for the purposes of online banking
that allows one to have easy and harmless access to bank account. E-
banking is a safe, fast, easy and effective electronic service that
permits one to operate bank account and to carry out online banking
services, 24 hours a day, and seven days a week. Electronic banking
has many names like Virtual Banking, Online Banking, Internet
banking, Mobile Banking and House-hold Banking.

E-banking enables customers:

 To get statement of accounts

 To transfer funds
 To make utility bill payments
 Get electronic confirmation for all transactions executed by E-
banking
 Management of credit cards
 To open new account and the like.

Functions of E - Banking

Electronic Banking provides following services

1. Bill Payment: Every bank has a tie up with insurance

companies, service providers, utility companies and the like. Banks
use this tie up to offer online payment of electricity bill, telephone
bill, mobile bill etc., and Banks charge a very minimal fee for
providing these services.
2. Fund Transfer: A customer can transfer funds from his account
to another with the same bank or even a different bank, anywhere in
India. 166 International Journal of Advanced Research in Commerce,
Management & Social Science (IJARCMSS) - October-December,
2021
3. Investment: Through electronic banking, a customer can open a
fixed deposit with the bank online through funds transfer. A customer
can buy and sell shares if he has a demat account and trading account.
Banks also allow customers to buy and redeem mutual funds through
online platforms.
4. Shopping: With digital banking service, a customer can
purchase goods or services through online platforms and pay for them
using his account.
5. Checking account balances: The customer can check his
account balance and detail records of transaction history and can
download the report.
6. Mobile banking: Mobile banking is a facility provided by
banks which permits its customers to do monetary transactions using
a mobile device such as smartphone or tablet.
7. Unified Payment Interface (UPI): Unified Payment Interface
is an immediate real time payment system which is established by
National Payment Corporation of India. Customers can make
transactions through their mobile phones from anyplace and at any
time.
8. Rewards and Loyalty points: These virtually integrated
packages test conventional methods of customer attainment and
retention by familiarizing cost effective and computable, rewards and
incentives.
9. Message Alert: The most important features of E-banking are
that the customer can receive notifications real time.
 ADVANTAGES / BENEFITS OF E-BANKING
1. Convenience: E-banking makes it very easy for users to do
different financial activities. People don't need to go to the bank to
access their bank accounts; they can do it at any time while sitting in
their homes. Finding time in a busy schedule to go to the bank to
check on account balances, interest rates, successful money transfers,
and other updates might take a lot of work.
2. Faster Service: People don't have to wait in line to pay their
bills or transfer money thanks to this system, which offers quick
service. Instant money transfers between accounts are possible with
internet payment options.
3. Higher Interest Rate: Online banking services offer their users
higher interest rates. It has decreased the operational costs of banks,
enabling them to provide better interest rates on consumer deposits.
4. Service Quality: Internet banking has raised the level of client
service. Using online banking to make payments is quick, secure, and
effortless. Using e-banking apps, customers may keep track of all
account-related transactions.
5. 24-7 Facility: Customers have access to e-banking services
around-the-clock, seven days a week, 24 hours a day. Customers can
access banking services and products at any time, from any location
6. Liquidity: It gives customers access to more readily available
finances. They can conveniently withdraw cash from ATMs at any
time and from any location.
7. Surveillance service: Customers have access to an updated
passbook at any time to manage their financial plans and keep track of
their transactions.
8. Paying bills online: Because it offers a feature to pay any sort
of bill, including energy, water supply, telephone, and other services,
you don't need to stand in line to pay your bills.
 DISADVANTAGES / LIMITATIONS OF E- BANKING:
1. Security problems: Online hackers' hacking of e-banking systems
has led to several security problems. Customers could suffer
significant financial loss if they lose their login information when
making payments.
2. High Start-Up Cost: It costs a lot to set up different computers,
software, hardware, a modem, and an internet network. Banking
businesses must make significant investments to launch online
banking services.
3. Lack of Direct Interaction B/W Clients and Banks: Direct
communication between customers and banks is one barrier to
internet banking. Customers communicate with banks online
through their websites. Customers can occasionally not address
their problems by contacting the bank virtually.
4. Transaction issues: Banking servers frequently go down, which
causes transactions to fail. Online payment issues that customers
encounter are inconvenient.
5. Training and development: Banks must teach their employees so
that they can better serve clients online. For keeping skilled and
trained workers, significant investment is needed.
6. Long process to use e-banking: In certain nations, government
banks offer online banking through the completion of an
application, which is then approved before allowing access to a
security password to log in. To properly log in, one must download
the relevant banking app and fill out all required fields (Sharma,
2016).
7. Challenging for beginners: It will be difficult for novices to
understand e-banking; they may find it difficult. Because they are
worried about losing money, customers are typically reluctant to
explore all of the features and alternatives offered on the website or
app. If prompt assistance is not provided, new clients typically give
up and switch back to traditional banking.

8. No Cash Deposit Platform: There is no platform for cash deposits

in e-banking services. This suggests that e-banking customers must
visit their local bank branches or automated teller machine
locations to deposit cash instead of using the platform (whether
they need instant services or not).

EMERGING CHALLENGES IN BANKING INDUSTRY

1. VIRTUAL PAYMENTS
Payments continue to be one of the most disruptive and dynamic
aspects to banking. Innovations are boosting customer
expectations and intensifying competition globally. With friction
endemic in almost every legacy payment system, the search for
frictionless digital payment experiences continues. PayPal, for
instance, crossed 250 million active users worldwide. Apple Pay and
Amazon Go are adding new users rapidly. Similarly, Tencent and
Alipay are setting new records for digital payment transactions in
China. Contactless in-store payments were about $2 trillion globally
and will triple by 2024.

2. CYBER-SECURITY
The banking sector is the most targeted area by hackers and fraudsters
for apparent reasons. Casey Merolla says: “Banks face a delicate
balance between customer experience and fraud management: while
prevention practices can create friction and a declined customer is
often an unhappy customer, fraud events can result in lost
relationships.”

3. MAXIMIZING OPERATIONAL EFFICIENCY

To remain competitive in an increasingly saturated market – especially
with the more widespread adoption of virtual banking – banking firms
have had to find a way to deliver the best possible user experience to
their customers. Internally, the challenge is to maximize efficiency and
keep costs as low as possible while maintaining maximum security
levels.

Automation is already significantly impacting asset management and

other industries across the board. According to the International
Federation of Robotics (IFR), at a global level, the adoption of
automation is accelerating, driven by increased global competitiveness
and the need to boost pro-activity and the quality of services.

4. VIRTUAL CUSTOMER SERVICE

Customer service is a must for banks, whether they’re brick and mortar
or virtual. Customer service is meant to solve customer problems in a
friendly and quick manner while helping banks save money through
speed and customer lifetime value. A major challenge in the banking
industry is large departments that aren’t using their human resources
wisely (too many people doing too little). The question has remained;
how to enhance communication.

5. ADOPTION OF NEW TECHNOLOGY

A major challenge for banks today is the adoption of new technology.
Due to legacy solutions and out-of-date business processes, larger
organizations have a hard time adopting new processes and tools,
making it – according to experts – the biggest challenge in the financial
industry for 2023.
Despite proven effectiveness in other financial sectors, banks are in no
hurry to apply artificial intelligence, block chain, or cloud computing
actively. Meanwhile, recent studies show that customers expect to
receive service from banks with minimal participation of consultants.
For the modern consumer, the autonomy and reliability of banking
services are essential.

6. VIRTUAL TRANSACTION AUTHENTICATION AND

SECURITY
Credit card fraud has severely affected 33% of small businesses in
2023 according to Forbes. With most of the population using credit
cards as a primary form of payment, businesses all over the globe offer
payment solutions that accept credit cards, however, due to the high
fraud rate, banks are struggling to implement solutions that work with
authenticating and securing virtual payments.

7. INVESTMENT BANKING
In most cases, investment banks operate as intermediaries between
parties needing capital and parties with money to invest. Economic and
financial challenges have impacted investment banking performance.
Investment banks, big or small, division or full-serviced, are now under
strict regulations and substantial operational costs. Traditional
investment banking models in the current market cannot achieve
success. Therefore, there’s a critical need for re-balancing priorities,
goals, and future resources.

8. CUSTOMER EXPECTATIONS
Currently, banks face a split opinion from customers about the service
they want to receive: online vs. offline. That said, both types of
customers want to receive benefits quickly, conveniently, cheaply, and
to the fullest extent.

Whatever the case, customer expectations are what initiate

transformation. Therefore, financial institutions must use scalable
strategies to evolve.

9. COMPETITION BETWEEN BANKS AND FINTECH

COMPANIES
Fin-tech companies have rapidly gained momentum and can seriously
compete with traditional financial institutions. Web and mobile apps
can already give loans, operate with crypto currency and even offer
financial advice.

10. SOCIAL MEDIA ENGAGEMENT

Social media is essential to business in 2023 and beyond. The graph
shows monthly visits to social platforms by millions of people.
Undoubtedly, social networks can become a mecca for any business.
The main thing is to choose the right target audience. Can social media
be a place to attract new customers for banks? To what extent can this
industry’s audience be engaged through social media.