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Chapter 3.1

Banking Technology in India

The term “banking technology” refers to the use of sophisticated information and communicationtechnologies together with computer science to enable banks to offer better services to its

customers in a secure, reliable, and affordable manner, and sustains competitive advantage over 

other banks. In the five decades since independence, banking in India has evolved through four 

distinct phases. During Fourth phase, also called as Reform Phase, Recommendations of the Narasimham Committee (1991) paved the way for the reform phase in the banking. Important

initiatives with regard to the reform of the banking system were taken in this phase. Important

among these have been introduction of new accounting and prudential norms relating to incomerecognition, provisioning and capital adequacy, deregulation of interest rates & easing of norms

for entry in the field of banking.

Entry of new banks resulted in a paradigm shift in the ways of banking in India. The growing

competition, growing expectations led to increased awareness amongst banks on the role and

importance of technology in banking. The arrival of foreign and private banks with their superior state-of-the-art technology-based services pushed Indian Banks also to follow suit by going in

for the latest technologies so as to meet the threat of competition and retain their customer base.Indian banking industry, today is in the midst of an IT revolution. A combination of regulatoryand competitive reasons has led to increasing importance of total banking automation in the

Indian Banking Industry.

Information Technology has basically been used under two different avenues in Banking. One isCommunication and Connectivity and other is Business Process Reengineering. Information

technology enables sophisticated product development, better market infrastructure,

implementation of reliable techniques for control of risks and helps the financial intermediariesto reach geographically distant and diversified markets. In view of this, technology has changed

the contours of three major functions performed by banks, i.e., access to liquidity, transformation

of assets and monitoring of risks. Further, Information technology and the communicationnetworking systems have a crucial bearing on the efficiency of money, capital and foreign

exchange markets.

Evolution of Technology in Banking

Despite the enormous changes the banking industry has undergone through during the past

20years let alone since 1943 one factor has remained the same: the fundamental nature of theneed customers have for banking services. However, the framework and paradigm within which

these services are delivered has changed out of recognition. It is clear that people’s needs have

not changed, and neither has the basic nature of banking services people require. But the way

 banks meet those needs is completely different today. They are simply striving to provide aservice at a profit. Banking had to adjust to the changing needs of societies, where people not

only regard a bank account as a right rather than a privilege, but also are aware that their 

 business is valuable to the bank, and if the bank does not look after them, they can take their  business elsewhere. Technology in banking ceased being simply a convenient tool for 

automating processes. Today banks use technology as a revolutionary means of delivering

services to customers by designing new delivery channels and payment systems. For example, inthe case of ATMs, people realized that it was a wrong approach to provide the service as an

additional convenience for privileged and wealthy customers.

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It should be offered to the people who find it difficult to visit the bank branch. Further, the cost

of delivering the services through these channels is also less. Banks then went on to createcollaborative ATM networks to cut the capital costs of establishing ATM networks, to offer 

services to customers at convenient locations under a unified banner.

People interact with banks to obtain access to money and payment systems they need. Banks, in

fact, offer only what might be termed as a secondary level of utility to customers, meaning that

customers use the money access that banks provide as a means of buying the things they really

want from retailers who offer them a primary level of utility. Customers, therefore, naturallywant to get the interaction with their bank over as quickly as possible and then get on with doing

something they really want to do or with buying something they really want to buy. That

explains why new types of delivery channels that allow rapid, convenient, accurate delivery of  banking services to customers are so popular. Nowadays, customers enjoy the fact that their 

 banking chores are done quickly and easily. This does not mean that the brick-and-mortar bank 

 branches will completely disappear. Just as increasing proliferation of mobile phones does notmean that landline telephone kiosks will disappear, so also the popularity of high-tech delivery

channels does not mean that physical branches will disappear altogether. It has been found that

corporate and older persons prefer to conduct their business through bank branches.

Chapter 3.2

Reasons for Changes in Banking Technologies

Banking has become a very important part of any person’s financial life. It is very important that

most number of individuals have at least a saving account in a bank as it creates a sense of 

saving in people’s lives. It also provides a census to the nation about the economic strength of its

 population. It makes people aware of their financial position and helps them to understand howto improve it.

Banking sector in India today :

Currently, around 40% of the Indian population is connected to the banking system which is

around 44 crore clients and is rising steadily. According To World Bank Estimates India could

emerge as the third largest domestic banking market in the world by 2040—and could ultimatelygrow faster than China. In the most recent update according to Dun & Bradstreet (D&B) -

Leading provider of international and Indian business information mentioned that the RBI has

issued a directive to public sector banks to ensure that all villages with a population of above

2,000 are brought under the formal banking net by 2012, and this will bring in an additional 145million customers into the banking network 

As mentioned above the growth of Indian banking sector and growing competition among many banks made it inevitable to bring about better and cheap services to customers. This paved the

way to new technological changes to make such services financially reasonable for banking

organizations. The growing I.T (Information Technology) sector helped these banks to makesuch new services possible.

In Indian banking sector enormous and far-reaching developments have taken place along withthe blurring of demarcations between different types of banking and financial industry

activities as a result of the following:

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1. Governments have implemented philosophies and policies based on an increase incompetition in order to maximize efficiency. This has resulted in the creation of 

large new financial institutions that operate simultaneously in several financial

sectors such as retail, wholesale, insurance, and asset management.

2. New technology creates an infrastructure allowing a player to carry out a wide

range of banking and financial services, again simultaneously.

3. Banks had to respond to the increased prosperity of their customers and to customers’

desire to get the best deal possible. This has encouraged banks to extend their activities

into other areas.

4. Banks had to develop products and extend their services to accommodate the fact that

their customers are now far more mobile.

5. Banks have every motivation to move into new sectors of activity in order to try to deal

with the problem that, if they only offer banking services, they are condemned forever to provide only a secondary level of utility to customers.

Chapter 3.3

Benefits of Modern Banking Technologies

1. Competition - Studies show that competitive pressure is the chief driving force behind

increasing use of Internet banking technology, ranking ahead of cost reduction and

revenue enhancement, in second and third place respectively. Banks see Internet banking as

a way to keep existing customers and attract new ones to the bank.

2. Cost Efficiencies - National banks can deliver banking services on the Internet at transaction

costs far lower than traditional brick-and-mortar branches. The actual costs to execute atransaction will vary depending on the delivery channel used. For example, according to Booz,

Allen & Hamilton, as of mid- 1999, the cost to deliver manual transactions at a branch

was typically more than a dollar, ATM and call center transactions cost about 25 cents, andInternet transactions cost about a penny. These costs are expected to continue to decline.

 National banks have significant reasons to develop the technologies that will help them deliver 

 banking products and services by the most cost-effective channels. Many bankers believe that

shifting only a small portion of the estimated 19-billion payments mailed annually in the U.S. toelectronic delivery channels could save banks and other businesses substantial sums of money.

However, national banks should use care in making product decisions. Management should

include in their decision making the development and ongoing costs associated with a new product or service, including the technology, marketing, maintenance, and customer support

functions. This will help management exercise due diligence, make more informed decisions,

and measure the success of their business venture.

3. Geographical Reach - Internet banking allows expanded customer contact through increased

geographical reach and lower cost delivery channels. In fact some banks are doing businessexclusively via the Internet — they do not have traditional banking offices and only reach their 

customers online. Other financial institutions are using the Internet as an alternative

delivery channel to reach existing customers and attract new customers.

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4. Branding - Relationship building is a strategic priority for many national banks. Internet

  banking technology and products can provide a means for national banks to develop andmaintain an ongoing relationship with their customers by offering easy access to a broad array of 

  products and services. Internet Banking 4 Comptroller’s Handbook By capitalizing on

 brand identification and by providing a broad array of financial services, banks hope to buildcustomer loyalty, cross-sell, and enhance repeat business.

5. Customer Demographics - Internet banking allows national banks to offer a wide array

of options to their banking customers. Some customers will rely on traditional branches toconduct their banking business. For many, this is the most comfortable way for them to

transact their banking business. Those customers place a premium on person-to-person contact.

Other customers are early adopters of new technologies that arrive in the marketplace. Thesecustomers were the first to obtain PCs and the first to employ them in conducting their banking

 business. The demographics of banking customers will continue to change. The challenge to

national banks is to understand their customer base and find the right mix of delivery channels todeliver products and services profitably to their various market segments.

Chapter 3.4

Most Revolutionary Banking Technologies

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 check, 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.

In many countries the use of debit cards has become so widespread that their volume of use has

overtaken or entirely replaced the check and, in some instances, cash transactions. Like credit

cards, debit cards are used widely for telephone and Internet purchases and, unlike credit cards,

the funds are transferred immediately from the bearer's bank account instead of having the bearer 

 pay back the money at a later date.

Debit cards may also allow for instant withdrawal of cash, acting as the ATM card for 

withdrawing cash and as a check guarantee card. Merchants may also offer cashback facilities to

customers, where a customer can withdraw cash along with their purchase.

Advantages

1. A consumer who is not credit worthy and may find it difficult or impossible to obtain a

credit card can more easily obtain a debit card, allowing him/her to make plastic

transactions.

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2. For most transactions, a check card can be used to avoid check writing altogether. Check 

cards debit funds from the user's account on the spot, thereby finalizing the transaction at

the time of purchase, and bypassing the requirement to pay a credit card bill at a later 

date, or to write an insecure check containing the account holder's personal information.

3. Like credit cards, debit cards are accepted by merchants with less identification and

scrutiny than personal checks, thereby making transactions quicker and less intrusive.

Unlike personal checks, merchants generally do not believe that a payment via a debit

card may be later dishonored.

4. Unlike a credit card, which charges higher fees and interest rates when a cash advance is

obtained, a debit card may be used to obtain cash from an ATM or a PIN-based

transaction at no extra charge, other than a foreign ATM fee.

ATM (Automated Teller Machines)

An Automated Teller Machine (ATM), also known as automated banking machine (ABM)

or Cash Machine and by several other names (see below), is a computerized telecommunicationsdevice that provides the clients of a financial 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 smartcard with a chip, that contains a unique card number and some security information.

Authentication is provided by the customer entering a personal identification number (PIN).

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

make cash withdrawals, credit card cash advances, and check their account balances as well as

 purchase prepaid cell phone credit.ATMs started as a substitute to a bank to allow its customers to withdraw cash at anytime

and to provide services where it would not be viable to open another physical branch. The ATMis the most visited delivery channel in retail banking, with more than 40 billion transactions

annually worldwide. In fact, the delivery channel revolution is said to have begun with the

ATM. It was indeed a pleasant change for customers to be in charge of their transaction, as nolonger would they need to depend on an indifferent bank employee. ATMs have made

 banks realize that they could divert the huge branch traffic to the ATM. The benefits hence were

mutual. Once banks realized the convenience of ATMs, new services started to be added.

History of ATMs in India

The first Automated Teller Machine (ATM) was introduced in the year 1967 by Barclays Bank in Enfield Town in North London. At that time a few would have anticipated excess in ATMs.

Then for many years after, the aim was to shift people off the teller lines thus lowering a bank‘s

distribution costs and increase efficiency. But in the 1980s, it was noticed that people continuedto visit branches, though not as frequently, so that with the added costs of ATMs, overall

distribution costs were actually rising.

Then, in the mid-1990s, came surcharges, which fuelled the proliferation of off-premises ATMs,which led in turn to the current overcapacity. There was a slowdown in ATM transactions,

 partially because of the consumer’s reaction to the imposition of surcharges.

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Also by the advent of surcharging there was a massive growth in the number of ATMs as itoffered ATM owner’s revenues making it economical to install ATMs where they might not

have been placed otherwise.

More people are now moving towards using the automated teller machines (ATM) for their  banking needs. According to a survey by Banknet India, 95% people now prefer this modern

channel to traditional mode of banking. Almost 60% people use an ATM at least once a week.

Increased ATM usage is also helped by the fact that customers have now the flexibility of usingATMs of other banks, as most of the banks are part of major interbank networks like National

Financial Switch (NFS), Mitr, BANCS, Cashtree and Cashnet. The interbank networks have

 brought together ATMs of several banks so that consumers would gain access to any of the participating banks’ ATMs. Banks find it cheaper to pay membership fees to these networks as

against setting up additional units in expensive-to-deploy areas.

ATMs are now seen to be more than mere cash dispensing machines. Customers use ATMs to

recharge their mobile phone pre-paid connections, pay their utility bills, even mutual fund

transactions – making them at par with flexibility given in internet banking – only more secure.Of the value-added services provided at ATMs, bill-payment is the most used service, followed

 by prepaid mobile talk-time recharges. However, still about one third of the respondents do notuse any value added services at ATMs.

The ATM market in India is not yet saturated. Though the concentration of ATMs is greater in

metros, the demand is increasing for other cities and even rural areas. ATM's per million people

approximately is 33 units are very low. Experts forecast that the growth rate (CAGR) is expectedto grow 18 percent up by 2013. Banks going into a self service model can have huge saving

 potential for banks and may also increase the convenience for the customers.

 

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Telephone Banking

Telephone banking is a service provided by a financial institution, which allows its customersto perform transactions over the telephone.

Most telephone banking services use an automated phone answering system with phone keypad

response or voice recognition capability. To guarantee security, the customer mustfirst authenticate through a numeric or verbal password or through security questions asked by a

live representative. With the obvious exception of cash withdrawals and deposits, it offers

virtually all the features of an automated teller machine: account balance information and list of latest transactions, electronic bill payments, funds transfers between a customer's accounts, etc.

Usually, customers can also speak to a live representative located in a call centre or a branch,although this feature is not always guaranteed to be offered 24/7. In addition to the self-service

transactions listed earlier, telephone banking representatives are usually trained to do what was

traditionally available only at the branch: loan applications, investment purchases andredemptions, chequebook orders, debit card replacements, change of address, etc.

Banks which operate mostly or exclusively by telephone are known as phone banks. They also

help modernize the user by using special technology. This makes it possible for a customer of the bank to know account related information over a telephone.

TeleBanker is a state-of-the-art interactive voice response system (IVRS) that facilitates 24-hours-a-day, 365-days-a-year banking from a plain Telephone instrument! Unique Features of 

Tele Banking : Data input by voice/keypad Encryption of input/output data output by

voice/fax/e-mail Customer authentication by password/PIN Services Available Balance enquiryIssue cheque book/DD Enquiry on last few transactions Fund transfer Inward/outward cheque

status Telephone/electricity/credit card bill payment.

Chapter 3.5

Internet Banking

Internet banking (or online banking) allows customers to conduct financial transactions on a

secure website operated by their retail or virtual bank , credit union or building society.

History of Internet Banking

The precursor for the modern home online banking services were the distance banking servicesover electronic media from the early 1980s. The term online became popular in the late '80s and

referred to the use of a terminal, keyboard and TV (or monitor) to access the banking systemusing a phone line. ‘Home banking’ can also refer to the use of a numeric keypad to send tones

down a phone line with instructions to the bank. Online services started in New York in 1981

when four of the city’s major banks (Citibank , Chase Manhattan, Chemical and Manufacturers

Hanover ) offered home banking services[1] using the videotex system. Because of the commercialfailure of videotex these banking services never became popular except in France where the use

of videotex (Minitel) was subsidized by the telecom provider and the UK, where

the Prestel system was used.

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The UK's first home online banking services were set up by Bank of Scotland for customers of the Nottingham Building Society (NBS) in 1983. The system used was based on the UK's Prestel 

system and used a computer, such as the BBC Micro, or keyboard (Tandata Td1400) connected

to the telephone system and television set. The system (known as 'Home link') allowed on-lineviewing of statements, bank transfers and bill payments. In order to make bank transfers and bill

 payments, a written instruction giving details of the intended recipient had to be sent to the NBS

who set the details up on the Home link system. Typical recipients were gas, electricity and

telephone companies and accounts with other banks. Details of payments to be made were inputinto the NBS system by the account holder via Prestel. A cheque was then sent by NBS to the

 payee and an advice giving details of the payment was sent to the account holder. BACS was

later used to transfer the payment directly.

Stanford Federal Credit Union was the first financial institution to offer online internet banking

services to all of its members in October 1994.Today, many banks are internet only banks. Unlike their predecessors, these internet only banks

do not maintain brick and mortar bank branches. Instead, they typically differentiate themselves

 by offering better interest rates and online banking features.

Features of Internet Banking

a. Funds transfer between a customer's own checking andsavings accounts, or to

another customer's account

 b. Investment purchase or sale

c. Loan applications and transactions, such as repayments of enrollments

d. Non-transactional (e.g., online statements, check links, cobrowsing, chat)

e. Bank statements

f. Financial Institution Administration -

g. Support of multiple users having varying levels of authority

h. Transaction approval process

i. Wire transfer 

Security of Internet Banking

Protection through single password authentication, as is the case in most secure Internet

shopping sites, is not considered secure enough for personal online banking applications in some

countries. Basically there exist two different security methods for online banking.

• The PIN/TAN system where the PIN represents a password, used for the login and TANs

representing one-time passwords to authenticate transactions. TANs can be distributed indifferent ways, the most popular one is to send a list of TANs to the online banking user 

 by postal letter. The most secure way of using TANs is to generate them by need using

a security token. These token generated TANs depend on the time and a unique secret,

stored in the

• security token (this is called two-factor authentication or 2FA). Usually online banking

with PIN/TAN is done via a web browser using SSL secured connections, so that there isno additional encryption needed.

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• Another way to provide TANs to an online banking user is to send the TAN of the

current bank transaction to the user's (GSM) mobile phone via SMS. The SMS text

usually quotes the transaction amount and details; the TAN is only valid for a short period of time. Especially in Germany and Austria, many banks have adapted this "SMS

TAN" service as it is considered as very secure.

• Signature based online banking where all transactions are signed and encrypted digitally.The Keys for the signature generation and encryption can be stored on smartcards or any

memory medium, depending on the concrete implementation.

Online Banking in India

The banking industry in India is facing unprecedented competition from non-traditional banking

institutions, which now offer banking and financial services over the Internet. The deregulation

of the banking industry coupled with the emergence of new technologies, are enabling newcompetitors to enter the financial services market quickly and efficiently.

Indian banks are going for the retail banking in a big way. However, much is still to be achieved.This study which was conducted by students of IIML shows some interesting facts:

• Throughout the country, the Internet Banking is in the nascent stage of 

development (only 50 banks are offering varied kind of Internet banking services).

• In general, these Internet sites offer only the most basic services. 55% are socalled 'entry level' sites, offering little more than company information and basic

marketing materials. Only 8% offer 'advanced transactions' such as online funds transfer,

transactions & cash management services.

• Foreign & Private banks are much advanced in terms of the number of sites

& their level of development.

Steps To Apply For Internet Banking

Step 1

You have to first acquire an online banking form from your bank. You can either get it from your 

 bank branch or download the form online from the bank website

Step 2

Fill in the necessary details in the form

Step 3

Once you have deposited your form it will be verified by the bank officers and checked whether the information is correct eg the email address , customer account , phone number, etc match

from the bank’s records.

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Step 4

You will First Receive your “USER ID” via email or post as you have chosen in your form in 7

days of deposit of form

Step 5

You will Receive your “Password” in the next 7 days of receipt of your User ID (This Procedureis important as such confidential data could be misused if your user i.d and passwords are sent

together and if it falls in the wrong hands in case of transit )

Step 6

You should go to the bank’s website and change your Password immediately after you receiveyour default password as a precaution.

Step 7

Once all Security firewalls are verified your account is now ready to make monetary transactionsonline.

Benefits of online banking

1. Comfort : One of the advantages of internet banking is that you can do transactions from thecomfort of your home or office. These transactions include transferring funds from your savings

accounts to your checking accounts and vice versa, making credit card payments and paying

 bills. You can also transfer funds from your account at one bank to another bank account either yours or someone else's as long as you have the account numbers. In-house banking done online

is usually free of charge. Transfer of funds to another bank may cost you a very minimum

amount.

2. Cost Saving : You can do the above mentioned transactions through the ATMs but it is faster 

and cheaper if you do it through the internet. You save gas because you don't have to drive to the

 bank and save time on commuting and waiting for your turn to make the transactions. It's notsignificant for some people, but you do save on postage if you make check payments and mail

them. It's less stressful because you don't have to take time off from work or get caught up in the

traffic crawl to do all the banking and bill payments.

3. 24/7 : You can make your transactions any time during the day or night and anywhere around

the globe as long as there is an internet connection and you remember your username and

 password. You can pay your bills individually anytime or give instructions to make an auto debitfrom any of your accounts. You can view your transactions and bank statements and print them

if you want to. This is especially convenient if you do online shopping.

4. Comparison Of Financial Products : Another one of the advantages of internet banking is that

you can also apply for loans and to redeem your rewards points by printing the application

forms, fill them and fax the forms to the bank. And the other advantages of internet banking when it comes to applying for loans is that you can go the websites of several banks and

make comparisons. You can view all the other services the banks provide and see their 

 promotions.

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5. Security : Online banking security is major concern for many people. The banks have enforcedseveral measures to ensure that your banking transactions online are secure. You should click on

the privacy policy and security arrangement and read the security measures that they enforce to

avoid system abuse. Among them are secure sockets layer or SSL channel, 128-bit encryption,username and password protection and authentication, firewalls and account locking. If you need

more information you click the FAQ. Most of the common questions are answered on this page

and you can contact the bank via the form on the website if you need more assistance. The banks

have done their part to ensure that their services are secure. It is your responsibility to avoid your account from being phished. One important thing to remember is that banks don't send

you email to ask for your personal details, username or password. They may send you email to

inform you that your e-statement is ready and you can view it online without any link to thewebsite. Or some banks may send you email to let you know of their latest promotions but that's

about it.

6. Updates of Changes : You will normally be notified about any changes on the banking

services, interruptions and updates via your message box when you log into your account. To

ensure your internet banking security, never give your username and password to anybody. Anddon't leave them where other people can have access. When you want to log into your account,

don't follow any links. Go to your browser and key in the website address. Most secure bankshave "https" with the "s" in their URLs.

Disadvantages of Internet Banking

1. Internet banking services provide a number of benefits to consumers. But while it has

its advantages, customers wishing to join the trend need to know its disadvantages as well.

Despite the growing popularity of internet banking, it cannot be denied that some people still

remain hesitant doing transactions online especially where money is concerned. Amidst the

aggressive marketing made by the numerous financial institutions that have gone online,some sectors of society are still doubtful about this type of banking notably on the aspect of 

security.

2. Impersonal : Doing transactions on the internet can be very impersonal. In other words, you

only do business with the use of a computer. No individual to receive and check your money

or correct some wrong information that you might have written on a certain form. And so for 

 people comfortable dealing with real people who provide personalized services and using

 paper and money, internet banking is not ideal.

3. Lack of trust : Let's face it, many people still don't trust the internet. For the new users who

have performed financial transactions for only a few times, they may still have this doubt

whether or not they did the right thing such as clicked the right button and so on. They can

only be comfortable once they print the transaction receipt and the transaction appeared on

the bank statement.

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4. Difficult for first timers : For a first time user, navigating through a website of an internet

 bank may be hard and may take some time. Opening an account could also take time as some

sites ask for numerous personal details including a photo identification which can

inconvenience the potential customer. Because of this complexity, they may be discouraged

to use this internet banking service. Tutorials and live customer support may be provided,

though, to help the client in his or her needed tasks so it's best to take the time to know the

virtual environment.

5. Security fraud : Many people shy away from internet banking because of the security threat.

They can't help but worry about this aspect what with news on fraudulent bank transactions

that pop up every now and then. However, this should not be a problem as banks that provide

internet banking services prioritize security above anything else. Since they value their 

customers, they always use the most advanced security technology in protecting their 

websites. In addition, the Federal Deposit Insurance Corporation (FDIC) is also standing

 behind them.

6. Upgrades : Most banks upgrade their online programs on a periodic basis sometimes adding

new features and products. When this happens, the bank may ask customers to re-enter 

account information which can be a cause of worry.

Chapter 3.6

Mobile Banking

Mobile banking (also known as M-Banking, mbanking, SMS Banking etc.) is a term used for  performing balance checks, account transactions, payments, credit applications etc. via a mobiledevice such as a mobile phone or Personal Digital Assistant (PDA). The earliest mobile banking

services were offered via SMS. With the introduction of the first primitive smart

 phones with WAP support enabling the use of the mobile web in 1999, the first European banksstarted to offer mobile banking on this platform to their customers.

Mobile banking has until recently (2010) most often been performed via SMS or the Mobile

Web. Apple’s initial success with iPhone and the rapid growth of phones basedon Google's Android (operating system) has led to increasing use of special client programs,

called apps, downloaded to the mobile device.

The advent of the Internet has enabled new ways to conduct banking business, resulting in the

creation of new institutions, such as online banks, online brokers and wealth managers. Suchinstitutions still account for a tiny percentage of the industry.

Over the last few years, the mobile and wireless market has been one of the fastest growingmarkets in the world and it is still growing at a rapid pace. According to the GSM

Association and Ovum, the number of mobile subscribers exceeded 2 billion in September 2005,

and now exceeds 2.5 billion (of which more than 2 billion are GSM).With mobile technology, banks can offer services to their customers such as doing funds transfer 

while travelling, receiving online updates of stock price or even performing stock trading while

 being stuck in traffic. Smartphones and 3G connectivity provide some capabilities that older text

message-only phones do not.

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According to a study by financial consultancy Celent, 35% of online banking households will be

using mobile banking by 2010, up from less than 1% today. Upwards of 70% of bank center call

volume is projected to come from mobile phones. Mobile banking will eventually allow users tomake payments at the physical point of sale. "Mobile contactless payments” will make up 10%

of the contactless market by 2010.[3]

Another study from 2010 by Berg Insight forecasts that the number of mobile banking users inthe US will grow from 12 million in 2009 to 86 million in 2015. The same study also predicts

that the European market will grow from 7 million mobile banking users in 2009 to 115 million

users in 2015.

Many believe that mobile users have just started to fully utilize the data capabilities in

their mobile phones. In Asian countries like India, China, Bangladesh, Indonesia and Philippines,where mobile infrastructure is comparatively better than the fixed-line infrastructure, and

in European countries, where mobile phone penetration is very high (at least 80% of consumers

use a mobile phone), mobile banking is likely to appeal even more.

Mobile banking in India

Checking account balances is the most popular banking service used by urban Indians withalmost 40 million users followed by checking last three transactions, 28 million and status of 

cheques with 21 million users.

Mobile banking is popular among the Rs.1 to 5 lakhs per year income group with almost 60% of 

mobile banking users falling in the income bracket, an indicator of adoption of this service by

younger generation.

Usage Unique Users (In millions)

Used mobile banking 43.70

Checking account balance 39.97

View last three transactions 28.15

Status of cheques 21.06

Payment reminders 20.92

Request a cheque book 19.11

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Steps in Applying for Mobile Banking

Requirements for SMSBanking.

• Mobile phone which supports SMS (GSM or CDMA)

• Registration of Mobile numbers with our Branches by submitting an application to the

Branch.

Registration Procedure :

• Collect SMS Banking application from your home branch, fill in and submit the same to

them.

• After that, register for SMS Enquiry through same Mobile Phone by sending SMSRegistration message as given below.

• Customer ID can be obtained from the Branch for the purpose of using SMS

Enquiry facility. Details of Mobile numbers (With country code) from which SMS

enquiry facility is accessed should be invariably mentioned very clearly in the application

Features of Mobile Banking

Following facilities are available under SMS Enquiry.

• Registration for SMS Banking

• Balance Enquiry in CASA

• Change of primary account

• Term Deposit details enquiry

• Issued Cheque status

• Cheque stop request

• View of last 5 transactions

• De-register for SMS Banking

Mobile Banking Services - Insights

Based on data gathered in April 2009 for Feb/March mobile banking urban Indian customers

checking account balance is the most frequently cited reason for using mobile banking. 40million Urban Indians used their mobile phones to check their bank account balances followed by viewing last three transactions. ICICI bank continues to maintain its leadership extending in

mobile space, 42% of all mobile banking users bank with ICICI, followed by HDFC (25.3%).

Mobile banking report: “ Most popular services and income profile” (Two month ended March2009, Urban Indian Mobile Phone Users).

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Insights :

 Advantages of Mobile Banking

1. Mobile banking has an edge over internet banking. In case of online banking, you must havean internet connection and a computer. This is a problem in developing countries. However, with

mobile banking, connectivity is not a problem. You can find mobile connectivity in the remotest

of places also where having an internet connection is a problem.

2. You can make transactions or pay bills anytime. It saves a lot of time.

3. Mobile banking thorough cell phone is user friendly. The interface is also very simple. You just need to follow the instructions to make the transaction. It also saves the record of any

transactions made.

4. Cell phone banking is cost effective. Various banks provide this facility at a lower cost as

compared to banking by self.

5. Banking through mobile reduces the risk of fraud. You will get an SMS whenever there is an

activity in your account. This includes deposits, cash withdrawals, funds transfer etc. You will

get a notice as soon as any amount is deducted or deposited in your account.

6. Banking through cell phone benefits the banks too. It cuts down on the cost of tele-bankingand is more economical.

7. Mobile banking through cell phone is very advantageous to the banks as it serves as a guide in

order to help the banks improve their customer care services.

8. Banks can be in touch with their clients with mobile banking.

9. Banks can also promote and sell their products and services like credit cards, loans etc. to a

specific group of customers.

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10. Various banking services like Account Balance Enquiry, Credit/Debit Alerts, Bill Payment

Alerts, Transaction History, Fund Transfer Facilities, and Minimum Balance Alerts etc. can beaccessed from your mobile.

11. You can transfer money instantly to another account in the same bank using mobile banking.

Disadvantages of Mobile Banking

1. Compatibility - There are a large number of different mobile phone devices and it is a big

challenge for banks to offer mobile banking solution on any type of device. Some of these

devices support Java ME and others support SIM Application Toolkit, a WAP browser, or 

only SMS.

Initial interoperability issues however have been localized, with countries like India using portals

like R-World to enable the limitations of low end java based phones, while focus on areas such

as South Africa have defaulted to the USSD as a basis of communication achievable with any

 phone. The desire for interoperability is largely dependent on the banks themselves, where

installed applications (Java based or native) provide better security,

are easier to use and allow development of more complex capabilities similar to those of internet

 banking while SMS can provide the basics but becomes difficult to operate with more complex

transactions.

There is a myth that there is a challenge of interoperability between mobile banking applications

due to perceived lack of common technology standards for mobile banking. In practice it is too

early in the service lifecycle for interoperability to be addressed within an individual country, as

very few countries have more than one mobile banking service provider. In practice, banking

interfaces are well defined and money movements between banks follow the IS0-8583 standard.

As mobile banking matures, money movements between service providers will naturally adopt

the same standards as in the banking world.

On January 2009, Mobile Marketing Association (MMA) Banking Sub-Committee, chaired by

CellTrust and VeriSign Inc., published the Mobile Banking Overview for financial institutions in

which it discussed the advantages and disadvantages of Mobile Channel Platforms such as Short

Message Services (SMS), Mobile Web, Mobile Client Applications, SMS with Mobile Web and

Secure SMS.

2. Security : Security of financial transactions, being executed from some remote location and

transmission of financial information over the air, are the most complicated challenges that need

to be addressed jointly by mobile application developers, wireless network service providers and

the banks' IT departments.

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The following aspects need to be addressed to offer a secure infrastructure for financial

transaction over wireless network :

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1. Physical part of the hand-held device. If the bank is offering smart-card based

security, the physical security of the device is more important.

2. Security of any thick-client application running on the device. In case the deviceis stolen, the hacker should require at least an ID/Password to access the application.

3. Authentication of the device with service provider before initiating a transaction.

This would ensure that unauthorized devices are not connected to perform financial

transactions.

4. User ID / Password authentication of bank’s customer.

5. Encryption of the data being transmitted over the air.

6. Encryption of the data that will be stored in device for later / off-line analysis by

the customer.

One-time password (OTPs) are the latest tool used by financial and banking service providers in

the fight against cyber fraud . Instead of relying on traditional memorized passwords, OTPs are

requested by consumers each time they want to perform transactions using the online or mobile

 banking interface. When the request is received the password is sent to the consumer’s phone via

SMS. The password is expired once it has been used or once its scheduled life-cycle has expired.

Because of the concerns made explicit above, it is extremely important that SMS

gateway providers can provide a decent quality of service for banks and financial institutions in

regards to SMS services. Therefore, the provision of service level agreements (SLAs) is a

requirement for this industry; it is necessary to give the bank customer delivery guarantees of all

messages, as well as measurements on the speed of delivery, throughput, etc. SLAs give the

service parameters in which a messaging solution is guaranteed to perform.

3. Scalability & Reliability : Another challenge for the CIOs and CTOs of the banks is to scale-

up the mobile banking infrastructure to handle exponential growth of the customer base. With

mobile banking, the customer may be sitting in any part of the world (true anytime, anywhere

 banking) and hence banks need to ensure that the systems are up and running in a true 24 x 7

fashion. As customers will find mobile banking more and more useful, their expectations from

the solution will increase. Banks unable to meet the performance and reliability expectations may

lose customer confidence. There are systems such as Mobile Transaction Platform which allow

quick and secure mobile enabling of various banking services. Recently in India there has been a

 phenomenal growth in the use of Mobile Banking applications, with leading banks adopting

Mobile Transaction Platform and the Central Bank publishing guidelines for mobile banking

operations.

4. Application Distribution - Due to the nature of the connectivity between bank and its

customers, it would be impractical to expect customers to regularly visit banks or connect to a

web site for regular upgrade of their mobile banking application. It will be expected that the

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mobile application itself check the upgrades and updates and download necessary patches (so

called "Over The Air" updates). However, there could be many issues to implement this

approach such as upgrade / synchronization of other dependent components.

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