E-BANKING INNOVATIONS IN INDIAN BANKING SECTOR

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E-BANKING INNOVATIONS IN INDIAN BANKING SECTOR

Neha Rani,Ph.D. Student

Department of Commerce, MDU Rohtak

ABSTRACT:

The content, structure, composition and scope of banking sector have been changed due to liberalization and globalization of Indian economy. Secondly, the change in operational environment of banks has been occurring due to advent of information and communication technology. Many challenges like increased customer expectation, diminishing customer loyalty and increased competition have forced the banks to adopt technology for providing the personalized services to customers at optimum cost. This paper highlights the evolution of e-banking and history of ATM, Debit card and Credit cards. This paper is showing the performance of public and private sector banks in ATM, Credit Card and Debit card, NEFT, RTGS and ECS from 2012-2016. For this study, data is collected from secondary sources. So anywhere anytime banking has improved the efficiency and quality of assets of banks.

Keywords: E-Banking, Mobile Banking, Internet Banking, NEFT, RTGS, ATM.

INTRODUCTION:

The emergence of Information Technology has brought about a revolutionary change in business marketing and traditional banking process. Banks are now harnessing the computer technology and internet as an opportunity for providing banking products and services which is currently known as E-Banking. The motive behind E-banking is to increase customer loyalty, easy to use and access banking services, increasing customer base by reducing customer attrition rate. The evolution of E-Banking started from the use of ATM and then different E-Banking channels like Telephone Banking, Mobile Banking and Internet Banking provided. Now many services like Plastic cards, EFT, NEFT, RTGS, IMPS and ECS are provided. The growth of internet penetration with more security measures is major factor for adoption of E-Banking. According to Internet Live stats Data, internet users have increased from 2.8 % of total population in 2006 to 34.8% of total population. Now 462.12 million people are internet users which are second largest online market after China. It is also estimated that by 2021, internet users in India will increased to 635.8 million. So the major contributor to adoption of E-Banking is increase in access of internet, increase in penetration of mobile phones and personal computers.

Bank play an important role in economic development of a country because bank perform functions like accepting deposits, lending money to different sectors of the economy, purchase & sale of financial products, perform agency functions etc. Due to globalized and competitive environment, banks have to up-grade their services by adopting information technology so branch banking/brick and mortar banking mode has been converted into click and order channel mode.

E-BANKING:

E-Banking is the use of internet for providing different services such as accepting deposits, advancing loans and making payments etc. Different mode like ATM, Mobile Banking, Internet Banking and Telephone Banking are used for delivering services more efficiently and at lesser cost.

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EVOLUTION OF E-BANKING:

Evolution at World level: The concept of online banking was adopted by four city banks (Citibank, Chase Manhattan, Chemical and Manufacturers Hanover) and used video text system for home banking services. Then in 1983, Nottingham Building Society of UK provided online banking services by using computer such as BBC Micro or keyboard (tandatta) connected to telephone system and television set alike UK Prestel system for providing services like payment of gas and electricity bill etc. then standard federal Credit Union adopted internet for providing information regarding location of branches & ATMs and different services offered. Then Wells Fargo and Presidential banks started the facility of opening of account over internet in 1995.

E-BANKING IN INDIA:

Information technology in India was adopted by bank in 1980’s on the recommendation of Rangarajan committee after that RBI is continuously working on installation of information technology by installing computer system for inter branch transactions, research work and improving customer service quality. Internet banking in India was introduced in phases and these are as follows:

1. In the first phase, accounting process and back office functions were automated using Advanced Ledger Posting Machines (ALPM) and the functions like maintenance of deposits and ledgers accounts and calculations of interest were performed.

2. In the second phase, front office as well as back office functions was automated for reducing processing time of transactions for improving customer service quality. Total Branch Mechanization was adopted for keeping the data up-to date.

3. In third phase, new private sector banks started operations using networking concept and Centralized operations so Core Banking Solution Concept was introduced aggressively and major focus was shifted to bank customer from branch customer. Due to centralization of database, customer service improved by reducing time & cost and improving efficiency.

4. In fourth phase, where customers can carry out their transactions through ATM, Mobile banking, internet Banking so Anytime, Anywhere and Anyhow (AAA) concept is adopted.

But adoption of modern channel for banking service was low due to low level of customer education. 5. Now banking sector is in fifth phase and interbank connectivity concept is adopted because

different techniques like NEFT, RTGS are adopted for interbank remittances due to which bank customer has been replaced with banking industry customer.

So banking sector is continuously adopting its technology for facing competition by increasing efficiency and improving customer service quality.

OBJECTIVE OF THE STUDY:

1. To understand the E-Banking and evolution of E-Banking in India.

2. To state the present status of various E-Banking products and services provided by scheduled commercial banks.

LATEST TECHNOLOGICAL TRENDS IN INDIA: 1. ATM:

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for withdrawn of money, use of cheques issued by bank, use of PIN for security. Despite many limitations, ATMs were installed for resolving issues like reducing queue in bank branches, reducing pressure of labor unions, lack of need of lengthening banking hours so ATMs was installed in different countries like USA, UK, Japan for increasing the self-service of banking service for 24*7 hours. But in Indian banking industry, mostly ATMs were installed by foreign banks and private banks in 90s. for facing the competition from banks having large branch network. Now ATMs is considered as a new banking channel for lowering transaction cost and increasing convenience of consumers. Now for increasing security biometric ATMs have been introduced and Multilanguage ATMs have been introduced due to diversity of India. Now ATM is not only cash dispensing machine but used for many purposes like mobile recharges, ticketing, bill payment, advertising, mutual fund transactions etc. Due to ATM switch network, ATM of one bank can be used on any other bank ATMs. Different ATM network switches like Cash Tree, BANCs, Cash Net Mitr and National Financial witch are linked to Visa and MasterCard Gateways. So ATM is now multifunctional machine through which many banking functions can be performed.

ATM is also known as cashpoint, Automatic Banking Machine (USA), All Time Money (India), MiniBank (Norway), BankoMat etc. Now the future of ATM is card less ATMs connected to mobile banking application technology. Currently 2 lakh ATMs have been installed in India which is 9.7 percent more than previous year and more than 70 percent share in ATMs have been installed by Public Sector Banks. Secondly, White Label ATMs are also been installed in India which are not installed by banks by third parties who will charge fees on every transactions. Currently 12,962 white label ATMs have been installed due to entry of payment banks and small financial banks.

TABLE 1.1 ATMs OF SCHEDULED COMMERCIAL BANKS

Year Public Sector Bank % Increase Private Sector

Bank

% Increase

March 2016 !,42,459 10.59 55,570 7.92

March 2015 1,28,811 16.65 51.488 6.5

March 2014 1,10,424 58.54 48.467 12.45

March 2013 69,652 19.69 43,101 19.46

March 2012 58,193 - 36,079

Source: Bank wise ATM/POS/CARD Statistics

2. CORE BANKING SOLUTIONS:

Centralized real Time Exchange banking system refers to a system under which customers can perform his banking transaction at any branch. CBS provides a centralized environment, in which the information of the customer's account is stored in the central server of the bank, and is available to all the CBS networked branches, instead of the branch server. Banks have been benefited through CBS because of better customer service, instant effect of transactions occur in account, reduction in error due to elimination of multiple entries and easy to introduce new products etc. customers are benefited due to anytime and anywhere banking facility, easily accessible through multiple channels, timely and accurately performance of transactions etc.

3. TELEPHONE BANKING:

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4. INTERNET BANKING:

Due to changing expectation of the Customers, banks started providing banking products and services through internet under which bank maintain a centralized website. Now customers can perform banking services like checking account balance, transaction history, fund transfer, mobile recharge and bill payment etc. from their home and office using internet banking. It is also known as Virtual banking and Online Banking. Banks provide online banking services by two methods. Firstly by adding internet as additional channels with branch banking and secondly, by starting internet only banks known as Virtual Banks.

5. MOBILE BANKING:

It is another channel provided by bank to customers for performing banking transactions through mobile phones or tablet. Through Mobile Banking you can perform functions like check account balance, transfer funds, balance Enquiry, Mobile recharge and payment of utility bills etc. Sometimes without using mobile phones, you can do banking transactions by using SMS alerts and USSD services. So three type of mobile banking are available: Mobile banking over Wireless Application Protocol, SMS Texting and USSD (unstructured Supplemented Structured Services). Different ways of Mobile Banking are:

 Mobile banking over WAP provides you to access your bank account using mobile banking application. Mobile banking can be availed using mobile data, Wi-Fi and java and no java handsets can use it by using GPRS. Banking services which can be performed by using it are access your account anytime, funds transfer, instant payment, mobile recharge, Bills payment, Request for cheque books/ loans/ stop payment orders and locating nearest bank and ATMs.

 Mobile banking over SMS Text do not require any mobile banking application. For using it, you have to put request to your bank for this service or register your number at your bank’s ATM. After registration on this service, you will get alert of your account on your phone through SMS. Services which can used through it are balance enquiry, mini statement and instant SMS alert of every activity on your account.

 Mobile banking over Unstructured Supplemented Structured Services is used for targeting rural areas under which a real time interaction occur between bank and customer. Under it a fixed number is dialed for getting instant alerts. Services availed are mini statement, request for cheques book, loans and stop payments, mobile recharge, IMPS fund transfer etc.

TABLE 1.2 MOBILE BANKING TRANSACTIONS OF SCBs

YEAR VOLUME % INCREASE VALUE % INCREASE

2016 4,94,76,880 150.42 57,28,03,968 238.66

2015 1,97,57,203 83.96 16,91,38,295 386.43

2014 1,07,39,917 67.78 3,40,70,602.21 243.48

2013 64,00,973 104.95 99,19,293.046 326.58

2012 31,23,105 - 23,25,320.68 -

Source: Bank wise Volumes in ECS/NEFT/RTGS/Mobile Transactions

6. PLASTIC CARDS:

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 CREDIT CARDS:

Credit Cards were invented In United States by different departmental store and other firms for purchasing goods from them .Due to limitations of use only on issued stores, a new bank card named it as charge it was invented by John Biggins of Brooklyn in 1946. Under it, customers have an account at Biggin’s bank and bank make payment to merchant and then collected from customer. The first bank credit for loan purchase was issued in New York Franklin National Bank in 1951. Then Diner Club introduced small cardboard card for general purpose after that American Express issued charge card for travel and entertainment purposes and later invested plastic card in place of cardboard card. Then Bank of America issued credit card in California, 1958 name as Bank Americard lately known as Visa in 1977. Now all credit cards can be used at national or international level like Mastercard, CitiBank, barclayard etc.

A credit card is a plastic card issued to a cardholder by financial company or credit union having an option to borrow of funds for purchase of goods and services. Credit limit are predecided according to individual credit rating and interest is charged after decided time. Visa, Master Card, American Express and Diner’s Club Payment networks are mostly used in India to issue credit cards.

Many type of credit cards are issued in India like:

1. Gold Credit Cards: These are issued to higher income individuals and facility under it are high cash withdrawal limit, high credit limit, cash back offers, rewards programs etc.

2. Silver Credit Cards: These are issued to normal salary employees having 4-5 years of work experience and good credit history. No interest charged in starting 6 months and very low membership fees.

3. Platinum Credit Cards: These have some additional privileges than gold card. Features of this card are no annual fee, protection against card loss due to theft & online fraud transaction & injury by accident, rewards programs like cash back offers, gifts, interest free credit period, lifestyle benefits etc.

4. Business Credit Cards: These are offered to businessman, corporations and financial Institution who can offer to employees. The privileges of cards are for facilitating businessman training programs, travels 7 entertainment deals etc.

5. Prepaid Credit Cards: It is directly connected to savings account. It means cardholders can transfer money to card for making purchases. Payments can be made until there is balance in account or card. It is low interest rate card for Ex. American Express prepaid Cards and Axis Bank Prepaid Credit Card.

Other than these many other type of credit cards are issued which are Classic Credit Cards, Credit Cards for Women, Reward credit cards, Auto/Fuel Credit Cards, balance Transfer Credit Cards, Cash Back Credit Cards, Co-Branded Credit cards, contactless Credit Cards, entertainment Credit cards, Lifestyle Credit Cards, Premium/ Signature Credit cards, Prepaid Credit Cards, travel Credit Cards.

TABLE 1.3 CREDIT CARDS ISSUED BY SCBs

YEAR PUBLIC SECTOR

BANKS

% INCREASE PRIVATE SECTOR

BANKS

% INCREASE

2016 50,48,354 19.06 1,47,31,014 21.99

2015 42,39,887 10.21 1,20,75,440 13.85

2014 38,47,002 11.18 1,06,06,405 -4.67

2013 34,59,995 12.94 1,11.25,397 17.56

2012 30,63,450 - 94,63,602 -

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 DEBIT CARDS:

Firstly, National Bank of Seattle issued debit cards to business executives with large saving accounts in 1978. Under it card will work as guarantee given by banks. Then Landmark issued debit card built on credit card infrastructure and ATM network basis. Debt card is a way to promote the E-Commerce and alternative means of payment so it is a plastic card that charge money directly from a consumer checking account for making purchases. Firstly, the major benefit of debit card is replacing interest bearing debt created through credit card because of payment through actual amount in account. Secondly, debit card have dual purpose like withdrawn of money through ATM and payment made to merchants for purchases. It can be used like credit card if card has a major payment processor logo and will be used without any PIN number. Even cardholders can take the benefit of reward programs and cashback offers.

American Express, Discover card, Visa and Master Card are four largest bank card issuers acceptable mostly in almost countries. Some Debit cards are issued for a special country like Maestro and Solo in UK, Rupay in India, EFTPOS cards in New Zealand and Australia etc. debit Card transaction can be processed in three ways as EFTPOS( online or PIN Debit), Offline Debit( Signature Debit) and Electronic Purse Card System. So different ways of transaction processed are:

1. Online Debit System: It requires authentication of every transactions and sometimes additionally secured by Personal Identification Number. This is more superior to offline system due to authentication system and immediate debit of amount from account.

2. Offline Debit System: These include Logos of major debit or credit cards like Master Card, Visa, and Maestro in U.K. these are used at POS with maximum daily limit of drawing funds and account debit reflected in 2-3 days.

3. Electronic Purse Card System: These are mostly used in Germany, Austria and Netherlands etc. In it, value is stored on card chip not in any account and network connectivity is required by machine for accepting the card.

TABLE 1.4 DEBIT CARD ISSUED BY SCBs

YEAR PUBLIC SECTOR

BANKS

% INCREASE PRIVATE SECTOR

BANKS

% INCREASE

2016 51,40,41,376 11.84 13,80,43,190 52.05

2015 45,96,26,728 45.46 9,07,87,177 20.71

2014 31,59,74,308 21.22 7,52,09,210 13.44

2013 26,06,47,307 21.46 6,62,94,457 10.69

2012 21,45,89,999 - 5,98,88,110 -

Source: Bank wise ATM/POS/CARD Statistics PREPAID CARD:

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7. EFT:

Electronic Fund Transfer is the transmitting money from one account to other account without any paper work because of initiation through electronic media like POS terminals, telephone, ATM, magnetic Tape or Computer, Fed wire & Credit Card. It can be used for both receipts and payments like payroll receipts, mortgage payment. Electronic Transferring System is secure because need of complete details like account no. of beneficiary and bank IFSC code.

8. NEFT:

These services started in Nov. 2005. Electronic message are used for transferring funds from one account to other account. For using NEFT, transferring bank and destination bank is required which can be same bank and different bank etc. transactions are processed through NEFT due to saving of time & ease and security. Complete information should be given of recipient for transferring funds like Name of the Recipient, Recipient Bank Name, Account No. of Recipient and IFSC code of Recipient bank. Through NEFT maximum 1o Lakh can be transferred and minimum no limit. Under NEFT, transactions are settled in batches and maximum batches can be 12 in a day.

TABLE 1.5 NEFT TRANSACTIONS OF SCBs

2016 12,92,36,970 21.92 1,02,26,358.71 42.56

2015 10,60,01,351 27.97 71,73,091.37 35.02

2014 8,28,31,068 75.9 53,12,252.91 47.46

2013 4,70,89,584 73.67 36,02,475.70 49.86

2012 2,71,13,193 - 24,03,889 -

Source: Bank wise Volumes in ECS/NEFT/RTGS/Mobile Transactions

9. RTGS:

Instant clearing of transactions is advantage of Real Time Gross Settlement System. RTGS payment gateway is used by RBI for instantly transferring amount from one account to other account. Minimum 2 Lakh and maximum any amount can be transferred through RTGS transactions. Complete beneficiary details like Beneficiary Name, Account Number, Receiver Bank Address and IFSC code of Receiver bank will be needed under RTGS.

TABLE 1.6 RTGS TRANSACTIONS OF SCBs

2016 98,64,091 6.49 1,00,045.36 14.45

2015 92,62,785 7.26 87412.48 6.83

2014 86,35,504 18.38 81,773.84 5.64

2013 72,94,396 15.06 77,410 15.23

2012 63,39,614 - 67,174 -

Source: Bank wise Volumes in ECS/NEFT/RTGS/Mobile Transactions 10. IMPS:

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11. ECS:

Electronic Clearing System is electronic mode of transferring funds from one account to many account especially bulky payments. This service is offered by RBI under Electronic Clearing Corporation for making faster payments & receipts like interest, dividend, pension, payment of electricity, telephone & water bill, EMI of loans, Periodic invest in Mutual Funds and insurance premium etc. two types of ECS are used:

 ECS Credit: It is also known as one to many or credit push facility. Financial institutions used it for transferring salary, interest, pension and dividend to employees, investors etc. It is used for transferring amount to many beneficiary having accounts in bank branches of different locations on the single debit to the bank account of institutions.

 ECS Debit: It is useful for receiving payment from many consumers like EMI, Bills payment, Cess & Tax Payment etc. these are periodic or repetitive in nature. It is useful for consumers due to cost effectiveness, convenient and secure. It is also known as many to one and debit pull facility for making small payments. It is less popular due to consumer awareness.

TABLE 1.7 ECS CREDIT TRANSACTIONS BY SCBs

2016 35,08,005 -59.70 87,69,88,04,965 -42.02

2015 85,68,200 -19.23 1,51,25,97,79,714.21 -29.57

2014 1,06,08,209 -4.83 2,14,78,65,76,454.14 25.94

2013 1,11,47,316 27.64 1,70,54,58,87,016.83 26.4

2012 87,32,751 - 1,34,91,58,70,000 -

TABLE 1.8 ECS DEBIT TRANSACTIONS BY SCBs

2016 91,69,626 -54.76 68310202486 -55.97

2015 2,02,73,076.00 14.26 1,55,17,03,89,385.78 22.81

2014 1,77,42,245 15.30 1,26,34,43,80,317.02 32.68

2013 1,53,86,563 4.03 95,22,20,53,787.13 22.9

2012 1,47,90,024 - 77,47,46,80,000 -

CONCLUSION:

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Commercial banks in volume and value is continuously increasing. So technology should be promoted but due to increase in risk due care should be taken in adopting new technology.

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