BANKING AND FINANCE

UNIT 8

E-Banking: Core Banking, Electronic Products, Electronic Payment System,

and Online Banking

E-banking (electronic banking) refers to the use of digital platforms and technologies to
conduct banking activities. It includes various services and systems that allow customers to
perform banking transactions over the internet or through electronic devices. In India and
globally, e-banking has revolutionized the way financial services are delivered and has made
banking more efficient and accessible. Below are the key components of e-banking:

1. Core Banking

Core banking refers to the centralization of a bank's operations, which allows customers to
access and manage their accounts and perform transactions across various branches and
ATMs using a single platform. Core banking solutions (CBS) facilitate real-time processing
of financial transactions and provide customers with the ability to access their accounts
remotely.

Features of Core Banking:

 Centralized Database: All branches of a bank are connected through a central server,
ensuring that data is updated in real time and can be accessed from anywhere.
 Real-Time Processing: Transactions such as deposits, withdrawals, and transfers are
processed instantly, ensuring that account balances are always accurate.
 Cross-Branch Transactions: Customers can perform transactions (such as
withdrawals, deposits, and transfers) at any branch of the bank, irrespective of where
their account was opened.
 Online Access: Core banking provides the infrastructure for online and mobile
banking services, allowing customers to access their accounts from anywhere.

Advantages of Core Banking:

 Improved customer service and convenience.

 Reduced operational costs due to centralization of operations.
 Better monitoring of transactions and enhanced security.

2. Electronic Products in Banking

Electronic banking products are digital tools or systems provided by banks to facilitate easier
and more efficient banking for customers. These products help customers access financial
services through electronic channels like the internet, mobile phones, and ATMs.
Key Electronic Products in Banking:

1. ATM (Automated Teller Machines):

o A self-service machine that allows customers to perform basic banking
operations such as cash withdrawals, balance inquiries, and fund transfers
without the need for human interaction.
2. Debit and Credit Cards:
o Debit Cards: Linked directly to the customer’s bank account, used for
purchasing goods/services and withdrawing money from ATMs.
o Credit Cards: Allow customers to borrow funds up to a certain limit to make
purchases or withdrawals, with the obligation to repay later, usually with
interest.
3. Mobile Banking:
o The use of mobile devices (smartphones, tablets) to access banking services
like account management, bill payments, money transfers, etc. Mobile banking
apps are secure platforms for managing finances on the go.
4. Digital Wallets:
o E-wallets like Paytm, Google Pay, and PhonePe allow customers to store
money electronically and make transactions without the need for physical
cards or cash.
5. POS (Point of Sale) Terminals:
o Electronic devices used by merchants to accept card payments. POS terminals
are commonly found in retail stores, restaurants, and service providers,
allowing quick card-based payments.
6. Internet Banking (Online Banking):
o The use of internet-based platforms to perform banking transactions, such as
fund transfers, bill payments, and checking account balances. Internet banking
platforms typically have enhanced security features like two-factor
authentication.

3. Electronic Payment Systems (EPS)

Electronic Payment Systems (EPS) refer to any payment system that facilitates the transfer
of funds or payment of goods and services using electronic devices or digital platforms. EPS
can be broadly categorized into two types: online payment systems and offline payment
systems.

Types of Electronic Payment Systems:

1. NEFT (National Electronic Funds Transfer):

o A nationwide electronic payment system that allows individuals to transfer
funds from one bank to another. Transactions are processed in batches and can
take a few hours to complete.
2. RTGS (Real-Time Gross Settlement):
o A payment system that allows real-time settlement of high-value transactions.
RTGS payments are processed instantly, and there is no limit on the amount
that can be transferred.
3. IMPS (Immediate Payment Service):
 o A real-time interbank electronic payment system that facilitates immediate
money transfers across banks, available 24x7.
4. UPI (Unified Payments Interface):
o A real-time payment system developed by NPCI (National Payments
Corporation of India) that allows users to link multiple bank accounts to a
single mobile application. UPI enables instant peer-to-peer fund transfers, bill
payments, and other transactions using a mobile phone.
5. Card Payments (Debit/Credit Cards):
o Debit and credit card payments enable customers to purchase goods and
services electronically by swiping their cards at POS terminals or making
online payments.
6. Mobile Wallets:
o Mobile wallets, such as Google Pay, Paytm, and PhonePe, allow users to store
funds and make payments digitally for a wide variety of services like utility
bill payments, mobile recharges, shopping, etc.
7. E-commerce Payment Gateways:
o Online payment gateways like Razorpay, PayPal, and CCAvenue facilitate
payments for e-commerce transactions, ensuring secure payment processing
for online purchases.

Advantages of Electronic Payment Systems:

 Convenience: Transactions can be performed from anywhere at any time.

 Security: Most EPS are designed with advanced encryption and fraud prevention
measures.
 Speed: Transactions are faster and can be completed in real-time (especially with
systems like UPI and IMPS).
 Cost-Effective: Reduced need for physical infrastructure like cash management or
cheque processing.

4. Online Banking

Online banking refers to the use of the internet to perform banking activities, enabling
customers to manage their bank accounts and conduct financial transactions without visiting a
bank branch.

Services Offered through Online Banking:

1. Account Management:
o Customers can view account balances, recent transactions, and account
statements online.
2. Fund Transfers:
o Customers can transfer funds between their accounts, to other bank accounts
(both within the same bank and to different banks), and make payments for
services or goods.
3. Bill Payments:
o Online banking allows customers to pay utility bills (electricity, water,
telephone, etc.) directly through their bank’s online platform.
 4. Loan Applications:
o Customers can apply for loans (personal, home, or business loans) and track
their application status via the bank’s online platform.
5. Investment Services:
o Customers can access online platforms to invest in mutual funds, stocks,
bonds, and other financial products.
6. Security Features:
o Online banking comes with various security features such as two-factor
authentication, digital signatures, encryption, and fraud detection systems to
ensure the security of customer transactions.

Advantages of Online Banking:

 24/7 Access: Banking services are available round the clock, making it more
convenient for customers.
 Cost-Effective: Online banking reduces the need for physical infrastructure, paper-
based transactions, and manual processes.
 Enhanced Services: Banks can offer a wider range of services, such as loan
management, investment advice, and insurance purchases, all through their online
platforms.
 Paperless Transactions: Online banking reduces the use of paper, contributing to
environmental sustainability.

Electronic Fund Transfer (EFT) System

Electronic Fund Transfer (EFT) refers to the process of transferring money from one bank
account to another using electronic channels. EFT has become an essential aspect of modern
banking, enabling fast, secure, and convenient transactions. It eliminates the need for physical
movement of money, reducing paperwork, and simplifying the transfer process.

EFT systems enable both individual customers and businesses to send and receive funds
through electronic channels, such as the internet, mobile apps, and ATMs, without the need
for manual intervention.

Key Components of Electronic Fund Transfer (EFT)

1. Sender (Originator):
o The person or entity initiating the payment or transfer. This could be an
individual transferring money or a business making payments to suppliers or
employees.
2. Receiver (Beneficiary):
o The person or entity receiving the payment or transfer. It could be an
individual receiving salary payments or a business receiving payments from
customers.
3. Payment Channel:
 o The medium through which the transfer is initiated, such as a mobile banking
app, online banking platform, or ATM.
4. Intermediary Banks:
o These banks act as intermediaries that help transfer the funds from the
sender’s account to the receiver’s account. In most cases, the funds are
transferred between different banks using a national payment system or
clearinghouse.
5. Banking Institutions:
o Banks or financial institutions that hold the accounts of the sender and the
recipient. These institutions process the EFT and ensure the funds are credited
or debited from the respective accounts.
6. Clearinghouse/Payment Gateway:
o A platform or system that facilitates the settlement and clearing of funds
between different financial institutions.

Types of Electronic Fund Transfer Systems

1. National Electronic Funds Transfer (NEFT):

o NEFT is a nationwide system that allows individuals and businesses to
transfer money from one bank account to another. It operates in batch
processing, meaning transfers are processed in hourly batches, which may
take a few hours to be completed.
o NEFT is available on all working days (excluding weekends and public
holidays).
o There is no limit on the amount that can be transferred using NEFT.
2. Real-Time Gross Settlement (RTGS):
o RTGS is a real-time electronic funds transfer system where the transfer of
funds happens immediately on a gross basis, meaning that the transaction is
settled in real-time without being grouped with other transactions.
o RTGS is typically used for high-value transactions, and the minimum amount
that can be transferred is usually set at ₹2 lakh (in India).
o This system is available during banking hours on weekdays and Saturdays
(except holidays).
3. Immediate Payment Service (IMPS):
o IMPS is a real-time payment service that allows interbank money transfers
24/7, including holidays. It enables fund transfers using mobile phones,
ATMs, and internet banking.
o IMPS is widely used for low-value transactions, such as transferring funds
between accounts, mobile recharges, and bill payments.
o IMPS provides a faster and more cost-effective alternative to NEFT and
RTGS, especially for smaller transactions.
4. Unified Payments Interface (UPI):
o UPI is a real-time, mobile-based payment system that allows customers to link
multiple bank accounts to a single mobile app and make instant payments.
Developed by the National Payments Corporation of India (NPCI), UPI has
become a popular mode of transferring funds for both individuals and
businesses.
 o UPI enables peer-to-peer transactions, bill payments, merchant payments, and
more, with a simple and secure process.
o It is available 24/7 and supports transactions of various amounts, making it a
highly accessible and convenient payment method.
5. Wire Transfers (SWIFT, RTGS for International Payments):
o For cross-border transactions, SWIFT (Society for Worldwide Interbank
Financial Telecommunication) provides a secure messaging platform for
transferring money between banks globally.
o SWIFT is used for international payments where both the sender and
receiver’s banks are located in different countries, and the funds are
transferred securely across borders.
6. Electronic Clearing Service (ECS):
o ECS is an electronic payment system used for bulk payments like salary
payments, pension payments, and utility bill payments.
o In ECS, the bank transfers funds to the designated account in a batch mode,
either crediting or debiting payments from multiple accounts simultaneously.
o There are two types of ECS: ECS Credit (for payments) and ECS Debit (for
collections).

Advantages of Electronic Fund Transfer

1. Speed:
o EFT systems, especially RTGS and IMPS, provide near-instant or real-time
processing, making it faster than traditional methods like checks or cash
transactions.
2. Convenience:
o EFT allows customers to send money anytime and from anywhere without
needing to visit a bank branch, making banking more accessible and flexible.
3. Cost-Effective:
o EFT transactions are often cheaper than traditional banking methods, as there
is no need for physical infrastructure or paperwork.
4. Reduced Risk of Fraud:
o Electronic transactions are secured with encryption, passwords, and two-factor
authentication, making them less prone to theft compared to manual methods
like cash transactions or checks.
5. Traceability and Transparency:
o Every transaction made through EFT can be traced and tracked easily,
providing transparency and accountability for both the sender and receiver.
6. Accessibility:
o People in remote areas can use EFT to receive payments and transfer money,
enhancing financial inclusion.

Disadvantages of Electronic Fund Transfer

1. Technical Issues:
 o EFT systems rely heavily on technology and infrastructure. Any network
outage, server downtime, or technical glitch can delay or disrupt transactions.
2. Security Risks:
o While EFT systems use encryption and security protocols, cyberattacks,
phishing, and hacking attempts can still pose a risk to sensitive information
and funds.
3. Limitations on Transactions:
o Some EFT systems, such as NEFT, have restrictions on transaction limits,
timing, or processing hours. Certain systems may not support instant payments
for high-value transfers.
4. Dependence on Internet:
o Many EFT systems, particularly IMPS and UPI, require a stable internet
connection to complete transactions. Lack of internet connectivity can disrupt
or delay payments.

NEFT, RTGS, and SWIFT: Key Differences and Overview

These are three prominent methods of electronic fund transfers used by banks for domestic
and international transactions. Each system has specific characteristics suited to different
types of transactions and transfer requirements. Here’s a detailed overview:

1. NEFT (National Electronic Funds Transfer)

NEFT is a nationwide system used for transferring funds from one bank account to another
within India. It allows individuals and businesses to transfer money between different banks
across the country in an electronic manner.

Key Features of NEFT:

 Transaction Timing: NEFT operates in batches, meaning transactions are processed

at specific intervals throughout the day. It is available during banking hours (typically
Monday to Saturday, excluding holidays).
 Processing Speed: As transactions are processed in batches, transfers may take a few
hours, although it could be completed by the end of the day.
 Transaction Limit: There is no upper limit for NEFT transfers, but banks may set
their own limits.
 Availability: NEFT is available for all types of payments: personal, business,
government-related transactions, etc.
 Cost: The charges for NEFT are typically low and depend on the value of the
transaction.
 Settlement: It is a deferred settlement system, which means the transactions are not
settled in real time but processed in batches.

Use Cases:

 Transferring money from one bank account to another.

 Bill payments, salary payments, and other domestic transfers.
2. RTGS (Real-Time Gross Settlement)

RTGS is a real-time system that facilitates the immediate transfer of funds on a gross basis
between banks, without any bundling with other transactions. It is mainly used for high-value
transactions.

Key Features of RTGS:

 Transaction Timing: RTGS is available on business days (Monday to Friday,

typically during banking hours).
 Processing Speed: RTGS transactions are processed immediately as they are sent,
making it much faster than NEFT. The transfer happens in real time, and the funds are
available to the recipient without delay.
 Transaction Limit: RTGS is typically used for high-value transactions, with a
minimum limit of ₹2 lakh for each transfer in India.
 Availability: RTGS is generally used for large transactions such as corporate
payments, government transactions, and interbank transfers.
 Cost: While RTGS tends to have slightly higher charges compared to NEFT, the fees
are still relatively low.
 Settlement: It is a real-time settlement system, meaning that funds are transferred
and settled immediately.

Use Cases:

 High-value payments, such as large corporate transfers, government-related

payments, and urgent fund transfers between banks.

3. SWIFT (Society for Worldwide Interbank Financial Telecommunication)

SWIFT is a global messaging network that facilitates the exchange of financial information
between banks and other financial institutions. Unlike NEFT and RTGS, which are primarily
domestic systems, SWIFT is used for international transactions.

Key Features of SWIFT:

 Transaction Timing: SWIFT does not transfer funds directly. It is a messaging

system used for sending transaction information between banks. The actual transfer of
funds depends on the method used by the recipient’s bank (such as correspondent
banking, a clearinghouse, or direct settlement).
 Processing Speed: While SWIFT messages are delivered within seconds, the actual
transfer of funds may take 1–3 business days, depending on the banks involved,
intermediaries, and settlement systems used.
 Transaction Limit: There is no specific minimum or maximum limit set for SWIFT
transactions. However, banks and financial institutions may impose their own limits.
 Availability: SWIFT is used for international money transfers and remittances
between banks across borders.
  Cost: SWIFT is more expensive than NEFT and RTGS, as it involves multiple
intermediaries for cross-border payments and currency conversion.
 Settlement: SWIFT itself does not settle funds; it only carries the instructions. The
actual funds are transferred using other mechanisms like correspondent banks.

Use Cases:

 International fund transfers between banks.

 Cross-border payments for businesses, remittances, and foreign exchange
transactions.

Information Technology in Finance: Current Trends and Global Development

The intersection of Information Technology (IT) and finance has led to significant
innovations, transforming how financial services are delivered and consumed worldwide.
Below are some of the key trends in this space:

1. Cryptocurrency
Cryptocurrency is a digital or virtual currency that uses cryptography for security, making it
difficult to counterfeit or double-spend. It operates on decentralized networks based on
blockchain technology.

Current Trends in Cryptocurrency:

 Bitcoin and Altcoins: While Bitcoin remains the most popular cryptocurrency,
alternative cryptocurrencies (altcoins) like Ethereum, Litecoin, and Ripple are
gaining traction due to different use cases and technological advancements.
 Central Bank Digital Currencies (CBDCs): Governments around the world are
exploring or testing their own digital currencies, such as the Digital Yuan in China,
as a response to the rise of private cryptocurrencies.
 Regulation: Countries are starting to regulate cryptocurrency markets to provide
security, prevent fraud, and ensure financial stability. Regulatory frameworks are
evolving in regions like the EU, US, and India.
 Decentralized Finance (DeFi): DeFi platforms, which use blockchain technology to
offer financial services without traditional intermediaries (like banks), are gaining
momentum. They offer lending, borrowing, and trading services directly between
peers.
 NFTs (Non-Fungible Tokens): NFTs, which are unique digital assets stored on the
blockchain, have revolutionized the art, entertainment, and gaming industries by
enabling the ownership and trade of digital collectibles and assets.

Global Developments:

 El Salvador became the first country to adopt Bitcoin as legal tender in 2021,
showcasing the government's effort to integrate cryptocurrencies into the formal
economy.
 Global Adoption: Cryptocurrencies are gaining wider acceptance among institutional
investors, major corporations, and fintech startups as a form of payment, store of
value, or investment asset.

2. FinTech (Financial Technology)

FinTech refers to the use of technology to deliver financial services in innovative ways,
making financial systems more accessible, efficient, and inclusive.

Current Trends in FinTech:

 Digital Banking: Neobanks (digital-only banks), such as Chime, Revolut, and

Monzo, offer banking services without physical branches, providing users with easy
access to financial tools like savings accounts, loans, and payments via mobile apps.
 Blockchain and Distributed Ledger Technology (DLT): FinTech companies are
increasingly adopting blockchain to provide transparent, efficient, and secure
transactions, especially in areas like payments, remittances, and trade finance.
 Artificial Intelligence (AI) and Machine Learning (ML): AI and ML are being
used for credit scoring, fraud detection, chatbots, and automated financial advice.
These technologies help reduce costs and improve service efficiency.
  Robo-Advisors: These are automated platforms that provide financial advice or
manage investments based on algorithms, helping customers access wealth
management services without the need for traditional financial advisors.
 RegTech (Regulatory Technology): Startups are focusing on using technology to
help financial institutions comply with regulations, enhance risk management, and
prevent fraud.

Global Developments:

 Rise of Challenger Banks: Companies like Stripe, Square, and PayPal are
providing tools for businesses to accept payments online, and have expanded into
lending, investing, and even cryptocurrency services.
 Mobile Payments: In countries like China and India, mobile payment systems such
as Alipay, WeChat Pay, Google Pay, and Paytm are transforming how consumers
and businesses handle payments.

3. Financial Literacy

Financial Literacy refers to the knowledge and skills required to make informed and
effective decisions regarding money management, investments, and financial planning.

Current Trends in Financial Literacy:

 Digital Learning Platforms: The use of online platforms and apps, such as Khan
Academy, Coursera, and Investopedia, has made financial education more
accessible to individuals worldwide. Interactive content and courses are helping users
understand key concepts in personal finance, investing, and money management.
 Gamification of Learning: Financial literacy programs are increasingly using
gamification techniques to engage users. Apps like Acorns and Robinhood use
reward-based systems to encourage users to start saving and investing.
 Social Media and Influencers: Financial influencers and YouTube channels, such as
Graham Stephan and The Financial Diet, are providing advice and education on
money management, helping young people learn about investing and financial
planning.
 School Curricula: Some countries and educational institutions are integrating
financial literacy into school curricula to better prepare the next generation for
managing their personal finances.

Global Developments:

 Financial Inclusion Initiatives: Global efforts to increase financial literacy,

especially in developing countries, are aimed at improving access to banking, credit,
and insurance services, ultimately promoting financial inclusion.
 Government Campaigns: Governments around the world are launching national
campaigns to promote financial literacy, ensuring individuals have the knowledge to
manage their finances effectively.
4. Alternative Financial Channels

Alternative Financial Channels refer to non-traditional methods of accessing financial

products and services, such as peer-to-peer lending, crowdfunding, and community-based
financial services.

Current Trends in Alternative Financial Channels:

 Peer-to-Peer (P2P) Lending: Platforms like LendingClub and Prosper enable

individuals to borrow and lend money directly, without going through traditional
banks. These platforms connect borrowers with investors who are willing to fund their
loans.
 Crowdfunding: Crowdfunding platforms such as Kickstarter, GoFundMe, and
Indiegogo allow individuals, businesses, and projects to raise funds from the crowd.
Crowdfunding has become a popular way for startups to raise capital, while also
offering people the opportunity to support causes and innovations.
 Microfinance: Microfinance institutions (MFIs) are offering financial services (like
microloans) to low-income individuals and small businesses that are typically
excluded from traditional banking systems. Grameen Bank and Kiva are notable
examples.
 Digital Lending: Platforms like Airtel Payments Bank and Paytm are making
digital loans available, often using alternative data (like mobile usage patterns or
social media activity) to assess creditworthiness.

Global Developments:

 The rise of DeFi (Decentralized Finance) platforms is offering alternative methods

for borrowing, lending, and investing through smart contracts and blockchain,
bypassing traditional financial intermediaries.

5. Online Payment Gateways

Online Payment Gateways are technological platforms that facilitate online transactions
between businesses and customers, enabling businesses to accept digital payments securely.

Current Trends in Online Payment Gateways:

 Mobile Wallets: Digital wallets such as Apple Pay, Google Pay, and Samsung Pay
are becoming mainstream, allowing consumers to make payments using their
smartphones or wearable devices.
 QR Code Payments: In regions like China and India, QR code-based payments are
widely used for retail transactions, enabling businesses to accept payments without
the need for physical card swipes or internet connectivity.
 Buy Now, Pay Later (BNPL): Services like Klarna, Affirm, and Afterpay are
gaining popularity as consumers opt to split their payments into installments. This is
particularly popular in e-commerce platforms, allowing customers to buy products
they may not be able to afford upfront.
  Blockchain for Payments: Blockchain technology is being used to create more
secure and transparent online payment systems, reducing fraud and transaction fees.
Ripple and Stellar are examples of companies working on blockchain-based payment
solutions.
 Cryptocurrency Payments: A growing number of online merchants are starting to
accept cryptocurrency payments, such as Bitcoin and Ethereum, through specialized
payment processors like BitPay and CoinGate.

Global Developments:

 Cross-Border Payments: Companies like PayPal, Stripe, and Square are expanding
their services globally, enabling businesses and consumers to transact across borders
seamlessly.
 Security Enhancements: Innovations such as Tokenization, 3D Secure, and Multi-
Factor Authentication (MFA) are improving the security of online payments,
helping reduce fraud and enhancing customer trust.