Unit 2

Banking Development and

Innovation
 ELECTRONIC FUNDS TRANSFER
• Electronic funds transfer (EFT) is the electronic
transfer of money from one bank account to
another.
• The fund transfer might be either within a single
financial institution or across multiple
institutions.
• It is done through computer-based systems,
without the direct intervention of bank staff.
• EFT's are known by a number of names. In the
United States, they may be referred to as
electronic checks or e-checks.
 Electronic fund transfer
system
Electronic Clearing Service (ECS)
National Electronic Funds Transfer (NEFT)
system
Real Time Gross Settlement(RTGS)
Immediate Payment System
 NATIONAL ELECTRONIC FUNDS
TRANSFER (NEFT)
• National Electronic Funds Transfer (NEFT) is one of the most
prominent electronic funds transfer system of India. Started
in November 2005.
• NEFT is a facility provided to bank customers to enable them
to transfer funds easily and securely on a one-to-one basis. It
is done via electronic messages.
• NEFT facilities are available in 30,000 bank branches all over
the country and work on a batch mode.
• Through NEFT individuals, firms and corporate can
electronically transfer funds from any bank branch to any
individual, firm or corporate having an account with any
other bank branch in the country.
• NEFT has gained popularity due to its saving on time and the
ease with which the transactions can be concluded.
REAL TIME GROSS SETTLEMENT (RTGS)
• Real Time Gross Settlement as the name suggests
is a real time funds transfer system which
facilitates you to transfer funds from one bank to
another in real time or on a gross basis. The
transaction isn’t put on a waiting list and cleared
out instantly.
• RTGS payment gateway, maintained by the Reserve
Bank of India makes transactions between banks
electronically.
• The transferred amount is instantly deducted from
the account of one banks and credited to the other
bank’s account.
 IMMEDIATE PAYMENT SERVICE (IMPS)
• Immediate Payment Service (IMPS) is an instant real-time
inter-bank electronic funds transfer system in India. IMPS
offers an inter-bank electronic fund transfer service through
mobile phones.
• Unlike NEFT and RTGS, the service is available 24/7
throughout the year including bank holidays.
• It is managed by the National Payments Corporation of India
(NPCI) and is built upon the existing National Financial Switch
network.
• In 2010, the NPCI initially carried out a pilot for the mobile
payment system with 4 member banks (State Bank of India,
Bank of India, Union Bank of India and ICICI Bank), and
expanded it to include Yes Bank, Axis Bank and HDFC Bank
later that year. IMPS was publicly launched on November 22,
2010.
 Unified Payments Interface
• Unified Payments Interface (UPI) is an instant real-time payment system
developed by National Payments Corporation of India facilitating inter-
bank instantly fund transfer between two bank accounts on a mobile
platform.
• Virtual Payment Address (VPA) or UPI ID: Send or request money
from/to bank account mapped using VPA.
• Mobile number: Send or request money from/to the bank account
mapped using mobile number.
• Account number & IFSC: Send money to the bank account.
• Aadhaar: Send money to the bank account mapped using Aadhaar
number.
• QR code: Send money by QR code which has enclosed VPA, Account
number and IFSC or Mobile number.
• As of March 2019 there are 142 banks live on UPI with a monthly
volume of 799.54 million transactions and a value of ₹1.334 trillion
 Society for Worldwide Interbank
Financial Telecommunication (SWIFT)
• S.W.I.F.T. SCRL, provides a network that enables financial institutions
worldwide to send and receive information about financial transactions in a
secure, standardized and reliable environment.
• Business Identifier Codes (BICs, previously Bank Identifier Codes) are
popularly known as "SWIFT codes".
• SWIFT does not facilitate funds transfer: rather, it sends payment orders,
which must be settled by correspondent accounts that the institutions have
with each other.
• Each financial institution, to exchange banking transactions, must have a
banking relationship by either being a bank or affiliating itself with one (or
more) so as to enjoy those particular business features.
• Assume a customer of a Bank of America branch in New York wants to send
money to his friend who banks at the Unica Credit Banca branch in Venice.
The New York customer can walk into his Bank of America branch with his
friend’s account number and Unica Credit Banca’s unique SWIFT code for its
Venice branch. Bank of America will send a payment transfer SWIFT message
to the UniCredit Banca branch over the secure SWIFT network. Once
Unicredit Banca receives the SWIFT message about the incoming payment, it
will clear and credit the money to the Italian friend’s account.
SWIFT in India
 Structured Financial Messaging System
• SFMS is a secure messaging standard developed to serve
as a platform for intra-bank and inter-bank applications.
• It allows the definition of message structures, message
formats, and authorization of the same for usage by the
financial community.
• It is an Indian standard similar to SWIFT.
• The inter-bank messaging part is used by applications like
electronic funds transfer (EFT), RTGS, delivery versus
payments (DVP), centralized funds management systems
(CFMS) and others.
• The SFMS provides application program interfaces (APIs),
which can be used to integrate existing and future
applications with the SFMS.
 Negotiated Dealing Systems &
Securities Settlement Systems
NDS is an electronic trading platform operated by RBI to
facilitate the issuing and exchange of government
securities and other types of money market instruments.

The goal is to reduce inefficiencies stemming from

telephone orders and manual paperwork, while increasing
transparency for all market participants.

In August 2005, the RBI introduced the Negotiated

Dealing System - Order Matching system, or NDS-OM,
an an electronic, screen-based, anonymous, order-driven
trading system for dealing in government securities.
 Types of NDS-OM members
• Direct Members - Direct members have
current accounts with the RBI and can directly
settle trades on NDS-OM.
• Indirect Members - Indirect members do not
have current accounts with the RBI and must
settle through NDS-OM members that have
direct accounts. Most foreign institutional
investors have indirect access, while resident
entities may have direct access.
 e cheque
• An e-cheque is an electronic document which
substitutes the paper check for online transactions.
Digital signatures (based on public key
cryptography) replace handwritten signatures.
• E cheques uses FSML (financial services markup
language) which allows for addition and deletion of
document blocks, signing, co-signing, endorsing
etc.,
• The payee receives the e-Cheque over email or web,
verifies the payer's digital signature, writes out a
deposit and digitally signs it.
e-cheque process
 Financial Inclusion
• Financial inclusion is where individuals and
businesses have access to useful & affordable
financial products and services that meet their
needs that are delivered in a responsible and
sustainable way.
• Financial inclusion is defined as the availability and
equality of opportunities to access financial
services.
• Examples: crowdfunding, robo-advisers, digital
payments, peer-to-peer (P2P) or social lending,
insurance telematics and awareness programs.
 Pradhan Mantri Jan Dhan Yojana
• PMJDY is financial inclusion program of
Government of India which is applicable to 20 to
65 years age group, that aims to expand and
make affordable access to financial services such
as bank accounts, remittances, credit, insurance
and pensions.
• This financial inclusion campaign was launched
by the Prime Minister of India Narendra Modi on
15 August 2014.
 Number
Number of Accounts
Bank Type Balance in Accounts of RuPay
Rural Urban Total Female Cards

Public Sector ₹793 billion

155 131 287 151 (53%) 235
Banks (US$11 billion)

Regional Rural ₹181 billion

52 10 62 34 (56%) 38
Banks (US$2.6 billion)

₹30 billion
Private Banks 6.9 5.6 13 6.7 (54%) 12
(US$430million)

₹1,005 billion
Total 214 147 361 192 (53%) 285
(US$15billion)

PMJDY statistics as on 3 July 2019 (All figures in millions)

 Fin Tech revolution in Banking
• Integration of technology into offerings by financial
services companies in order to improve their use and
delivery to consumers.
• It describes a variety of financial activities, such as
money transfers, depositing a check with your
smartphone, bypassing a bank branch to apply for credit,
raising money for a business startup, or managing your
investments, generally without the assistance of a
person.
• According to EY's 2017 Fintech Adoption Index, one-third
of consumers utilize at least two or more fintech services
and those consumers are also increasingly aware of
fintech as a part of their daily lives.
 Most active areas of Fintech innovation
• Cryptocurrency and digital cash.
• Blockchain technology, including Ethereum, a distributed ledger
technology (DLT) that maintain records on a network of computers, but
has no central ledger.
• Smart contracts, which utilize computer programs (often utilizing the
blockchain) to automatically execute contracts between buyers and
sellers.
• Open banking, a concept that leans on the blockchain and posits that
third-parties should have access to bank data to build applications that
create a connected network of financial institutions and third-party
providers. An example is the all-in-one money management tool Mint.
• Insurtech, which seeks to use technology to simplify and streamline the
insurance industry.
• Regtech, which seeks to help financial service firms meet industry
compliance rules, especially those covering Anti-Money Laundering and
Know Your Customer protocols which fight fraud.
• Robo-advisors, such as Betterment, utilize algorithms to automate
investment advice to lower its cost and increase accessibility.
Thank You