TECHNOLOGICAL ADVANCES IN BANKING

Payment and Settlement System of RBI

The Reserve Bank of India (RBI) manages the Payment and Settlement System (PSS) in the country. It
includes various mechanisms for the transfer, clearing, and settlement of funds. The Real Time Gross
Settlement (RTGS) and National Electronic Funds Transfer (NEFT) are prominent electronic funds
transfer systems operated by the RBI. RTGS facilitates real-time, one-to-one funds transfer, while NEFT
operates in batches at scheduled intervals. These systems play a crucial role in ensuring secure and
efficient financial transactions across banks in India

Electronic Banking

Electronic banking, also known as online banking, enables users to conduct financial transactions and
manage accounts through digital platforms, providing convenience and accessibility. It includes services
like fund transfers, bill payments, and account monitoring through websites or mobile apps offered by
banks.

Electronic Clearing Services (ECS)

Electronic Clearing Service (ECS) is an electronic mode of funds transfer that facilitates automatic and
periodic payments. It is commonly used for activities like salary credits, dividend payments, and bill
payments. ECS operates in two variants: ECS Credit for bulk credit transactions, and ECS Debit for bulk
debit transactions. This system helps streamline financial transactions, reducing the need for manual
processes and paperwork.

Real-Time Gross Settlement (RTGS)

Real-Time Gross Settlement (RTGS) is a electronic funds transfer system where transactions are
processed instantly on a one-to-one basis, without netting. It ensures real-time and irrevocable transfer
of funds between banks or financial institutions. RTGS is commonly used for high-value and time-
sensitive transactions, such as large fund transfers or settlements in financial markets.

National Electronic Funds Transfer (NEFT)

NEFT is an electronic funds transfer system in India that enables individuals and businesses to transfer
funds between banks. It operates on a deferred net settlement basis and is suitable for both one-time
and recurring transactions. NEFT transactions occur in hourly batches, and there are specific timings for
initiating transfers. Keep in mind that NEFT is primarily used for domestic fund transfers within India.

Immediate Payment Service (IMPS),

IMPS (Immediate Payment Service) is an electronic funds transfer system in India that enables instant
interbank electronic funds transfer. It allows users to transfer money 24/7, including weekends and
holidays, using mobile phones, internet banking, and ATMs. IMPS provides a quick and convenient way
for individuals to send and receive money in real-time.
Indian Financial System Code (IFSC)

The Indian Financial System Code (IFSC) is a unique 11-character code assigned to each bank branch in
India by the Reserve Bank of India (RBI). It's used for electronic funds transfer and online banking
transactions within the country. The first four characters represent the bank, the fifth character is
always '0', and the last six characters identify the specific branch.

Automated Teller Machine (ATM)

An Automated Teller Machine (ATM) is an electronic device that allows users to perform financial
transactions, such as withdrawing cash, checking account balances, and transferring funds, without the
need for human assistance. ATMs are commonly found in banks, retail locations, and standalone kiosks,
providing convenient access to various banking services for account holders.

An ATM card is primarily used for withdrawing cash from Automated Teller Machines (ATMs).
Additionally, it can be used for:

Balance Inquiry: Check your account balance at an ATM.

Deposit: Some ATMs allow you to deposit cash or checks.

Transfer Funds: Transfer money between linked accounts.

PIN Change: Change your ATM card's Personal Identification Number (PIN).

Statement Printing: Print a mini bank statement at an ATM.

Debit Card

A debit card is a payment card that deducts funds directly from a linked bank account when making a
purchase. It can be used for transactions at various outlets, online shopping, and ATMs. Unlike a credit
card, a debit card only allows you to spend what's available in your account.

Credit Card

A credit card is a payment card issued by a financial institution that allows the cardholder to borrow
funds to make purchases. Users can make transactions up to a predetermined credit limit. Credit cards
offer convenience, build credit history, and often provide rewards. However, it's crucial to use them
responsibly to avoid debt and interest charges.

Internet Banking

Internet banking, also known as online banking, is a digital service that allows individuals to perform
various financial transactions and banking activities over the internet. Users can access their bank
accounts, check balances, transfer funds, pay bills, and conduct other banking operations through a
secure online platform provided by their bank. It offers convenience by enabling users to manage their
finances from anywhere with internet access, using a computer or a mobile device.
Mobile Banking

Mobile banking refers to the use of a smartphone or tablet to perform banking activities, such as
checking account balances, transferring funds, paying bills, and managing financial transactions. This
convenient service allows users to access their bank accounts and conduct various financial tasks on the
go, using a dedicated mobile banking app provided by their bank. It enhances accessibility and provides
a secure way to handle personal finances from anywhere with an internet connection.

Digital Banking

Digital banking refers to the use of electronic channels, such as the internet, mobile devices, and other
digital platforms, to conduct various banking activities. This includes services like online account
management, electronic funds transfers, mobile banking apps, and virtual financial transactions. Digital
banking provides customers with convenient access to their accounts and financial services without the
need to visit physical bank branches.

Digital Signature

A digital signature is a cryptographic technique used to verify the authenticity and integrity of digital
messages or documents. It involves the use of a private key to sign the data, and the recipient can verify
the signature using the corresponding public key. This ensures that the message has not been altered
and comes from the purported sender. Digital signatures are commonly used in electronic transactions,
software distribution, and secure communication protocols.

Digital Certificate

A digital certificate is a cryptographic key pair consisting of a public key and a private key, issued by a
trusted third party called a Certificate Authority (CA). It verifies the identity of the certificate holder and
is used to establish secure communication over the internet through protocols like SSL/TLS.

Digital Wallet

A digital wallet is a software-based system that securely stores users' payment information and
passwords for various payment methods. It allows users to make electronic transactions, including
online purchases and mobile payments, without the need to enter payment details each time. Examples
include Apple Pay, Google Pay, and various banking apps.

Cash Deposit Machine (CDM)

A Cash Deposit Machine (CDM) is a self-service terminal provided by banks where customers can deposit
cash directly into their accounts. It functions similarly to an ATM but is specifically designed for cash
deposits. Users can insert cash into the machine, and it will verify and credit the deposited amount to
the respective bank account.

Cheque Truncation System (CTS)

Cheque Truncation System (CTS) is a process that facilitates faster and more efficient clearing of
cheques. Instead of physically moving the paper cheques from one bank to another, CTS involves
scanning the cheque images and electronically transmitting the data for clearing. This reduces the time
taken for cheque clearance and minimizes the risk of fraud associated with the physical movement of
paper cheques.

Cashless Payment System

A cashless payment system refers to transactions conducted without the use of physical currency (cash).
Instead, electronic methods such as credit/debit cards, mobile wallets, digital currencies, and online
banking are employed to facilitate payments. Cashless systems offer convenience, speed, and often
enhance security. They have become increasingly prevalent in modern economies, contributing to the
digitization of financial transactions.

Cashless Economy

A cashless economy refers to a system where transactions are conducted electronically, without the
need for physical currency. It involves the use of digital payment methods such as credit/debit cards,
mobile wallets, and online banking for financial transactions. This aims to reduce reliance on cash,
offering convenience, efficiency, and often improved transparency in financial dealings.

Efficiency: Cashless transactions are more efficient than handling physical currency, reducing time spent
on counting and verifying money.

Reduced Crime: Cashless transactions can contribute to a decrease in certain crimes like theft and
robbery, as there's less physical cash to target.

Financial Inclusion: Digital transactions can help include more people in the formal financial system,
promoting economic inclusivity.

Transparency: Electronic transactions leave a digital trail, enhancing transparency and making it easier
to track and monitor financial activities.

Cost Savings: Moving towards a cashless economy can lead to cost savings for governments and
businesses in printing, handling, and securing physical currency.

Convenience: Cashless transactions offer convenience, allowing individuals to make payments or

transfer money quickly and easily using digital devices.

Digital Records: Electronic transactions generate digital records, aiding in financial management, tax
compliance, and audit trails.

Encourages Innovation: The shift to a cashless economy fosters technological innovation in the financial
sector, leading to new and improved payment solutions.
Global Connectivity: Cashless systems facilitate cross-border transactions, promoting global economic
integration.

Economic Stimulus: Governments can use digital transactions to implement economic stimulus
measures more efficiently, such as distributing benefits or subsidies directly to citizens.

International Payment System

International Payment Systems encompass various mechanisms and networks facilitating cross-border
financial transactions. This includes:

SWIFT (Society for Worldwide Interbank Financial Telecommunication): A messaging network used by
financial institutions globally to securely transmit information and instructions concerning financial
transactions.

IBAN (International Bank Account Number): A standardized international bank account numbering
system to facilitate efficient and error-free cross-border payments.

Credit Cards: Global credit card networks like Visa, MasterCard, American Express, etc., enable
electronic transactions internationally.

Payment Gateways: Online payment systems such as PayPal, Stripe, and others play a role in facilitating
cross-border e-commerce transactions.

Foreign Exchange (Forex) Platforms: Platforms for currency exchange and trading, allowing businesses
and individuals to convert one currency to another.

Central Banks: National central banks and international entities (e.g., IMF) contribute to the stability of
international financial systems and may influence cross-border payment policies.

Blockchain and Cryptocurrencies: Technologies like blockchain and cryptocurrencies (e.g., Bitcoin,
Ethereum) offer decentralized and borderless alternatives for international transactions.

Clearing Houses: Entities that facilitate the clearing and settlement of international transactions,
reducing risk and ensuring the smooth flow of funds.

IBAN and BIC: International Bank Account Number (IBAN) and Bank Identifier Code (BIC) are
standardized codes used to identify specific banks and accounts, ensuring accurate routing of
international payments.

Foreign Exchange Rates: International payments involve currency exchange, and rates can fluctuate.
Understanding and monitoring these rates is crucial for cost-effective transactions.

SEPA: The Single Euro Payments Area (SEPA) allows for simplified euro transactions within European
countries, promoting seamless cross-border payments.
Cross-Border Payment Challenges: Issues like differing regulations, time zones, and diverse banking
systems pose challenges to the efficiency and speed of international payments.

Payment Types: Various payment types exist, including wire transfers, letters of credit, and online
payment platforms, each with its own set of procedures and considerations.

Compliance and Anti-Money Laundering (AML): International payment systems adhere to strict
regulatory standards to prevent money laundering and ensure compliance with global financial
regulations.

Blockchain and Cryptocurrencies: Emerging technologies like blockchain and cryptocurrencies are
influencing international payments, offering potential alternatives with features like transparency and
decentralization.

Correspondent Banking: Many international payments involve correspondent banks that act as
intermediaries to facilitate transactions between the payer's and payee's banks.

SWIFT

The Society for Worldwide Interbank Financial Telecommunication (SWIFT) is a global messaging
network that enables financial institutions to securely and efficiently communicate and transfer
information about financial transactions. It provides a standardized way for banks and other financial
entities to exchange information, such as payment instructions, ensuring a reliable and standardized
communication system for international financial transactions.

SWIFT Codes: SWIFT assigns unique codes to financial institutions globally, enabling them to
communicate securely and ensuring accuracy in cross-border transactions.

Global Financial Messaging: SWIFT, or the Society for Worldwide Interbank Financial
Telecommunication, is a global messaging network used by financial institutions to securely and
efficiently communicate and exchange financial information.

Standardized Communication: SWIFT provides a standardized messaging platform, ensuring that

financial institutions worldwide can communicate and conduct transactions in a consistent and secure
manner.

Banking Network: It is a cooperative society founded in 1973, headquartered in Belgium. SWIFT's

network connects over 11,000 financial institutions across more than 200 countries, making it a vital
component of international financial communication.

Message Types: SWIFT messages cover various financial transactions, including payments, securities,
trade finance, and treasury transactions. Each message type is identified by a unique code.

Security Measures: Security is a top priority for SWIFT. The organization employs various security
measures, including encryption and secure messaging protocols, to protect the integrity and
confidentiality of financial messages.
SWIFT Codes: Financial institutions use SWIFT codes (also known as Business Identifier Codes or BICs) to
uniquely identify each other during the exchange of financial messages. These codes help in routing
transactions accurately.

Regulatory Compliance: SWIFT messages often play a crucial role in meeting regulatory requirements
and standards in the financial industry, enhancing transparency and accountability.

Role in International Trade: SWIFT facilitates international trade by providing a reliable and standardized
communication channel for banks involved in trade finance transactions, such as letters of credit.

Continuous Evolution: SWIFT continues to evolve its services, introducing new technologies and
standards to meet the changing needs of the financial industry. This includes initiatives like SWIFT gpi
(Global Payment Innovation) to enhance cross-border payments.

Operational Support: SWIFT not only enables financial transactions but also supports various operational
aspects for financial institutions, contributing to the overall efficiency of the global financial system.