FINANCE & BANKING 21BSO662

Module-3 Recent Innovations in Banking

E-Banking, Telebanking, Internet banking, Mobile banking, NEFT, RTGS, EFT, UPI, IMPS,
ATM, Debit card, credit card, MICR Cheques, Crypto Currency, Central bank digital currency.

Recent Innovations in Banking

The banking industry has undergone a remarkable transformation in recent years, driven by
technological advancements, evolving customer expectations, and regulatory developments.
These innovations have redefined how banking services are delivered, making them more
accessible, secure, and efficient.
One of the most significant innovations is Electronic Banking (E-Banking), which enables
customers to perform banking transactions through digital channels without visiting a physical
branch. Closely related to this is Internet Banking, where users can access their accounts,
transfer funds, pay bills, and manage finances via secure websites. Mobile Banking has further
enhanced convenience by offering banking services on smartphones, allowing customers to
transact on the go.
Telebanking, though an earlier innovation, still plays a role by allowing users to access their
accounts and conduct transactions through voice calls and Interactive Voice Response (IVR)
systems. With the need for real-time fund transfers, services like NEFT (National Electronic
Funds Transfer) and RTGS (Real-Time Gross Settlement) have become vital, allowing safe and
swift money transfers across banks. The introduction of IMPS (Immediate Payment Service)
and UPI (Unified Payments Interface) has revolutionized peer-to-peer payments, offering
instant, 24x7, and user-friendly transfer methods.
Banking cards such as Debit and Credit Cards continue to support both online and offline
transactions, while ATMs (Automated Teller Machines) provide round-the-clock access to cash
and basic banking functions. The adoption of MICR Cheques (Magnetic Ink Character
Recognition) has improved the speed and accuracy of cheque processing.
In the realm of digital finance, Cryptocurrency has emerged as a disruptive innovation,
providing a decentralized and transparent alternative to traditional currencies. Although not yet
regulated in many countries, its impact on banking and financial systems is significant. In
response, central banks are exploring or launching Central Bank Digital Currencies (CBDCs)
— a secure and government-backed digital currency that combines the benefits of digital assets
with the trust of fiat currency. In India, the Reserve Bank of India has introduced the Digital
Rupee (e₹) as a CBDC initiative.
These innovations have not only enhanced customer experience but have also improved
operational efficiency, reduced costs, and expanded financial inclusion. As technology
continues to evolve, the banking sector is expected to embrace further digital transformation,
including the integration of Artificial Intelligence, blockchain, and biometric authentication to
ensure seamless, secure, and personalized banking services.
E-banking
In the current digitised financial landscape, banks are increasingly shifting their services online,
providing customers access to various banking services. It encompasses everything from loans
and debit/credit cards to personalised digital financial solutions.
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Electronic banking, commonly known as e-banking, is at the forefront of this transformation.

Using telecommunication and electronic networks, e-banking delivers a broad spectrum of
financial products and services.
E-banking, also known as electronic banking, revolutionises traditional banking by integrating
technology into financial services. This digital evolution allows customers to conveniently use
banking services through the internet using net banking or mobile apps.
E-banking broadens accessibility, offering a seamless and convenient way for individuals to
manage their finances remotely. E-banking encompasses a range of services, including online
transactions, account management, and digital financial products, thus bringing banking
services to consumers' fingertips.
Types of Electronic Banking
The emergence of technology and digitisation in banking has given rise to various types of e-
banking:
1. Online Banking:
Online banking empowers customers to manage their accounts seamlessly. With online
platforms, users can easily access their accounts, view activities, make payments, and do
transactions.
2. Mobile Banking:
Designed for on-the-go convenience, mobile banking brings banking to customers' fingertips.
With smartphones or other mobile devices, users can access accounts, view activities, make
payments, and transfer funds effortlessly.
3. ATM Banking:
ATM banking extends the reach of e-banking. Customers can access accounts, view activities,
make payments, and transfer money conveniently through automated teller machines (ATMs).
4. Direct Deposit:
Direct deposit simplifies income management. Users can have salaries, government subsidies,
or other income directly deposited into their bank accounts, streamlining financial transactions.
5. Electronic Funds Transfer (EFT):
It is helpful for electronic payments and money transfers, providing a fast and secure means
for customers to manage their finances.
6. Electronic Bill Payment:
This e-banking branch enables customers to settle bills electronically, offering a convenient
and efficient way to manage financial obligations.
7. Online Investing:
For those venturing into financial markets, online investing within e-banking allows customers
to conveniently purchase stocks, bonds, and mutual funds through online platforms.
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What are the Features and Benefits of E-banking?

Features of e-banking:
Account Management
E-banking allows users to effortlessly manage different accounts from a single online
platform, including current and savings accounts, credit cards, and loans.
Fund Transfers
Another important feature of e-banking is that it enables quick and secure fund transfers
through NEFT, RTGS, IMPS, or UPI modes.
Bill Payment
Online banking simplifies bill payments, allowing users to settle utility bills, credit card
payments, loan repayments, online mobile recharges, etc.
Online Statements and Alerts
E-banking offers access to online account statements, eliminating the need for paper
statements.

Key benefits
Transferring Funds
E-banking provides swift fund transfers between accounts, ensuring efficiency and
convenience without physical bank visits.
24/7 Availability
With 24/7 accessibility, e-banking allows users to manage their accounts and conduct
transactions at their convenience from anywhere.
Easy to Operate
User-friendly interfaces and available tutorials make e-banking platforms easy to navigate,
ensuring a seamless and straightforward banking experience.
Convenience
E-banking eliminates the need for physical bank visits, offering users the flexibility to
perform transactions from anywhere and anytime, thus saving time.
Activity Tracking
Users can track their account activities in real-time, gaining visibility and control over their
finances with features like transaction history and account balance updates.
Online E-Banking Services
Mobile Banking (M-banking)
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M-banking facilitates financial transactions through mobile devices, allowing users to

perform account transfers, bill payments, credit applications, balance checks, and other
transactions via smartphones.
Electronic Clearing System (ECS)
An innovative solution for busy individuals, ECS automatically debits credit card bills or loan
EMIs from the user's savings account, eliminating concerns about missed or late payments.
Electronic Fund Transfers (EFTs)
EFTs enable electronic money transfers between individual and multiple accounts, within or
across financial institutions, using computer-based systems without direct bank staff
intervention.
Internet Banking
Internet banking, accessible day or night, empowers users to conduct routine transactions,
inquire about balances, stop payments, and even apply for credit cards or loans through
traditional or online banks.
The Significance of Electronic Banking
Here is the significance of e-banking services for different segments:
For Clients
• Cost Efficiency
E-banking streamlines transactions, saving clients time and money without frequent branch
visits.
• No Geographic Barriers
E-banking eliminates geographical constraints, allowing seamless transactions from anywhere.
• Convenience
Clients enjoy 24/7 access to their accounts, managing finances quickly and flexibly.

For Businesses
• Enhanced Efficiency
E-banking automates routine tasks, enhancing business productivity and facilitating seamless
operations.
• Cost Reduction
Internet banking cuts costs associated with various financial services, presenting substantial
savings for businesses.
• Error Reduction
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Electronic banking minimises transaction errors, ensuring precision and preventing potentially
costly mistakes.
• Fraud Prevention
Improved transaction visibility through e-banking acts as a deterrent to fraudulent activities.

For Banks
• Lower Transaction Costs
Electronic transactions prove cost-effective for banks, thus contributing to financial
efficiency.
• Error Prevention
The electronic relay of information eradicates the risk of human errors in banking processes.
• Paperwork Reduction
Digital records reduce paperwork, simplify internal processes, and align with environmental
goals.
• Customer Loyalty
Banks offering convenient e-banking services foster higher customer loyalty and satisfaction.
How Does an e-Banking System Work?
The e-banking system brings a significant change in how we handle money using technology.
You can do it on our phones or the bank's website. It's like having a bank in your pocket. You
can see your money, send it to others, and even pay bills. It's handy for people who travel or
live in different countries. Some banks give even more online benefits, like no extra charges
on online transactions and convenient money transfers 24/7.

Telebanking
Telebanking, also known as telephone banking or call centre banking, is a service that allows
customers to conduct their banking transactions over the phone, without needing to visit a
physical bank branch. It's a type of electronic banking, specifically using the telephone as the
medium.

Key Features:
• Customer Service: Telebanking provides a channel for customers to reach out to bank
representatives for queries, complaints, and requests.
• Financial Transactions: It enables customers to perform a range of financial activities,
including checking account balances, transferring funds, paying bills, and making
investments.
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• Accessibility: Telebanking offers 24/7 access to banking services, allowing customers

to manage their finances anytime from anywhere.
• Security: While convenient, telebanking raises security concerns, including potential
device breaches or compromised login credentials.
Advantages:
• Convenience: Telebanking eliminates the need to visit a physical branch, saving
customers time and effort.
• Accessibility: It allows customers to access their accounts and perform transactions
from anywhere with a phone.
• 24/7 Availability: Telebanking is available around the clock, allowing customers to
manage their finances at their convenience.
• Cost-Effective: Some banks may offer lower fees or even waive fees for telebanking
transactions.
• Efficiency: It can streamline processes and expedite transactions, especially for routine
banking tasks.
• Enhanced Control: Telebanking provides customers with greater control over their
finances, including access to account information and transaction history.
Disadvantages:
• Security Risks: Phishing scams, malware, and unauthorized access are potential
security threats associated with telebanking.
• Technological Dependence: Telebanking relies on technology, which may not be
accessible to all customers, particularly those who are less technologically savvy.
• Digital Divide: Not all individuals have access to the necessary technology (phones,
internet, etc.) to use telebanking services.
• Customer Support Challenges: While telebanking provides a channel for customer
service, it can be challenging to address complex issues or resolve disputes over the
phone.
• Privacy Concerns: Telebanking raises privacy concerns, especially regarding the
handling and storage of sensitive financial data.
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Internet Banking
Internet banking, also known as online banking or Net Banking is a facility offered by banks
and financial institutions that allow customers to use banking services over the internet.
Customers need not visit their bank’s branch office to avail each and every small service.
Internet Banking, also known as online banking or e-banking, is a digital system that allows
customers of banks and other financial institutions to conduct financial transactions via the
internet. It enables users to perform almost all traditional banking activities through a computer,
tablet, or smartphone without visiting a physical bank branch.

Features of Internet Banking:

1. 24x7 Accessibility:
o Customers can access banking services at any time, from anywhere in the world.
2. Account Management:
o View account balance, download statements, track transactions, and manage
multiple accounts.
3. Fund Transfers:
o Transfer money using NEFT, RTGS, IMPS, UPI, etc.
4. Bill Payments:
o Pay utility bills such as electricity, water, mobile recharge, DTH, credit card,
etc.
5. Online Shopping Payments:
o Make secure payments for purchases on e-commerce platforms.
6. Loan Applications:
o Apply for personal, home, auto, or education loans online.
7. Cheque Book & Demand Draft Requests:
o Request for a new cheque book or demand draft online.
8. Investment Services:
o Invest in fixed deposits, recurring deposits, mutual funds, and insurance.
9. Tax Services:
o Pay taxes and view Form 26AS, TDS, etc.
10. Customer Support:
• Live chat, email, or message-based support options.
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Advantages of Internet Banking:

1. Convenience:
o Eliminates the need to visit a bank branch; transactions can be done anytime,
anywhere.
2. Time-Saving:
o No queues or waiting time; tasks like fund transfers or bill payments are
completed in seconds.
3. Paperless Transactions:
o Environment-friendly and reduces paperwork.
4. Enhanced Financial Control:
o Real-time updates and transaction history provide better control over finances.
5. Cost-Effective:
o Reduces overhead costs for banks; often free for customers.
6. Security Features:
o Protected with encryption, OTPs, two-factor authentication, and firewalls.
7. Faster Processing:
o Quick fund transfers and faster service delivery.
8. Wide Range of Services:
o Offers services beyond basic banking like investment, insurance, tax payment,
etc.

Disadvantages of Internet Banking:

1. Cybersecurity Threats:
o Risk of phishing, hacking, and malware attacks if not careful.
2. Lack of Personal Interaction:
o No face-to-face support; may be difficult for customers needing personalized
assistance.
3. Technical Issues:
o Server downtime, slow internet connection, or software glitches may affect
service.
4. Digital Literacy Requirement:
o Not user-friendly for the elderly or people unfamiliar with technology.
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5. Dependency on Internet:
o Cannot access services without a stable internet connection.
6. Delayed Problem Resolution:
o Complaint handling may take longer without direct access to a bank officer.
7. Transaction Errors:
o Mistakes in fund transfer or incorrect inputs may cause financial loss.
Internet banking has revolutionized the banking sector by making services more accessible and
efficient. However, while it offers convenience and cost benefits, users must be cautious about
security and technological challenges.

Mobile Banking
Mobile Banking refers to the use of a smartphone or tablet to perform financial transactions. It
involves accessing banking services through a mobile app provided by a bank. It is a subset of
electronic banking and enables customers to access their accounts, transfer funds, pay bills,
and more, all through their mobile devices.
Features of Mobile Banking:
1. 24x7 Access:
o Banking services are available at all times, from any location.
2. Account Information:
o Check account balances, transaction history, and mini-statements instantly.
3. Fund Transfers:
o Transfer money using NEFT, IMPS, RTGS, UPI, and even QR code scanning.
4. Bill Payments and Recharge:
o Pay electricity, water, gas, DTH, and mobile bills and recharge prepaid
connections.
5. Mobile Wallet Integration:
o Link mobile wallets like Google Pay, PhonePe, Paytm, etc., with bank accounts.
6. Banking Services:
o Apply for loans, open fixed or recurring deposits, block or request a debit card.
7. Notifications and Alerts:
o Instant alerts for transactions and promotional offers.
8. Biometric Login:
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o Enhanced security through fingerprint or facial recognition.

9. QR Code Payments:
o Scan-and-pay feature for easy payments at merchants.
10. Customer Support:
• Chatbots, call support, and help desk integration within the app.

Advantages of Mobile Banking:

1. High Convenience:
o No need to visit a bank or ATM – bank on the go, anytime.
2. Real-Time Transactions:
o Instantly transfer funds, receive payments, and pay bills.
3. User-Friendly Interface:
o Most apps are easy to navigate, with intuitive design.
4. Cost and Time Efficient:
o Saves time and often incurs lower transaction fees than traditional methods.
5. Wide Availability:
o Accessible in urban and rural areas where mobile connectivity exists.
6. Secure Banking:
o Equipped with multiple layers of security (PINs, OTPs, biometrics).
7. Supports Digital India Mission:
o Promotes cashless economy and financial inclusion.
8. Promotions and Offers:
o Access to exclusive discounts, cashback, and rewards via mobile transactions.
Disadvantages of Mobile Banking:
1. Security Risks:
o Susceptible to hacking, malware, phishing, and SIM swap fraud if precautions
are not taken.
2. Requires Internet/Mobile Network:
o Dependent on internet connectivity or mobile data.
3. Technical Glitches:
o App crashes, bugs, or downtime can interrupt access.
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4. Device Dependency:
o Access limited to those owning smartphones or compatible devices.
5. Digital Literacy Barriers:
o Elderly or less tech-savvy individuals may find it difficult to use.
6. Limited Features Compared to Internet Banking:
o Some banking services may still be restricted or unavailable via mobile apps.
7. Battery and Storage Issues:
o Continuous use can drain battery and take up space on devices.
Mobile banking is a revolutionary step in making banking faster, easier, and more accessible.
However, users must be educated and vigilant to safeguard themselves from digital threats and
to make the most of its features.
NEFT – National Electronic Funds Transfer
NEFT (National Electronic Funds Transfer) is a nationwide centralized payment system that
enables individuals, firms, and corporates to electronically transfer funds from one bank
account to another in India. It is regulated and maintained by the Reserve Bank of India (RBI).
It operates on a Deferred Net Settlement (DNS) basis, where transactions are settled in batches.
However, since December 2019, NEFT is available 24x7, and transactions are settled in near
real-time.
Objectives of NEFT:
• To provide a safe, efficient, and cost-effective system for funds transfer.
• To encourage paperless banking.
• To enable easy movement of money across India for individuals and institutions.
• To reduce reliance on physical instruments like cheques and demand drafts.
How NEFT Works:
1. Initiation: Customer logs in to their bank's internet/mobile banking or visits a branch
and provides:
o Recipient's name
o Bank account number
o IFSC code of the beneficiary’s bank
o Amount to be transferred
2. Authorization: The bank processes the request and forwards the transaction to the RBI
NEFT centre.
3. Settlement: RBI sorts the transactions and sends them to the beneficiary's bank.
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4. Credit: The beneficiary bank credits the amount to the recipient's account.

🕒 The process is typically completed within 2 hours, though usually much faster.

Key Features of NEFT:

• Regulated by: RBI
• Mode: Online (internet/mobile banking) and offline (bank branches)
• Settlement Type: Near real-time (earlier it was batch-wise)
• Timings: 24x7x365 (including Sundays and bank holidays)
• Transaction Limit: No minimum or maximum limit set by RBI (banks may impose
limits)
• Charges: No charges for inward transactions; outward charges are minimal or NIL
(varies by bank)
• Required Information: Beneficiary name, account number, IFSC code, amount

Advantages of NEFT:
1. Convenience: Transfer funds without visiting a branch.
2. Low Cost: Most banks offer NEFT either free or at very nominal charges.
3. Accessibility: Available through mobile and internet banking.
4. Secure: Governed by RBI, with proper encryption and safety protocols.
5. Widely Used: Accepted by almost all banks across India.
6. Supports Recurring Transactions: Useful for salary, EMI, vendor payments.

Limitations of NEFT:
1. Not Truly Instant: Though now near real-time, it may take a few minutes.
2. Bank Downtime: If the bank servers are down, transactions can be delayed.
3. Dependent on IFSC: Errors in IFSC or account numbers can lead to failure or
misrouting.
4. No Reversal on Error: Transactions once processed cannot be reversed easily without
beneficiary consent.
NEFT is one of the most trusted and widely used methods of fund transfer in India. Its wide
availability, cost-effectiveness, and RBI governance make it an essential tool in promoting a
digital and cashless economy.
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NEFT vs. Other Payment Systems:

Feature NEFT RTGS IMPS UPI

Mode Near real-time Real-time Real-time Real-time

Min Limit No limit ₹2 lakh No limit No limit

Max Limit No RBI limit No upper limit Varies (usually ₹5 lakh) Varies (₹1-5 lakh)

Availability 24x7x365 24x7 24x7 24x7

Used By Individuals, firms Firms, corporates All users All users

RTGS – Real-Time Gross Settlement

Meaning:
RTGS (Real-Time Gross Settlement) is a payment system in which funds are transferred from
one bank to another in real-time and on a gross basis, meaning each transaction is processed
individually and immediately as it is initiated.
It is primarily used for high-value transactions and is maintained by the Reserve Bank of India
(RBI).

Purpose of RTGS:
• To facilitate instant and secure transfer of large amounts.
• To reduce systemic risks in high-value payments by avoiding batch processing.
• To offer real-time fund settlement between financial institutions.

How RTGS Works:

1. Initiation: The remitter logs into internet banking or visits a bank branch and provides:
o Beneficiary’s name and bank details
o Account number
o IFSC code of receiving bank
o Amount to be transferred (minimum ₹2,00,000)
2. Processing: The transaction is sent directly to the RTGS system by the remitting bank.
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3. Settlement: The RBI settles the funds in real-time and individually, without waiting
for batches.
4. Credit: The receiving bank credits the amount to the beneficiary’s account
immediately.

Key Features of RTGS:

• Regulated by: RBI
• Settlement Type: Real-time and individual (gross)
• Minimum Amount: ₹2,00,000
• Maximum Amount: No upper limit (subject to bank policies)
• Availability: 24x7x365 (including weekends and holidays)
• Channels: Internet banking, mobile banking, bank branches
• Required Information: Beneficiary’s name, account number, IFSC code, amount

Advantages of RTGS:
1. Instant Transfer: Real-time settlement ensures quick transfer of funds.
2. Ideal for High-Value Payments: Suitable for large corporate and business
transactions.
3. Secure: Operated by the RBI, with strict security measures.
4. Final & Irrevocable: Once processed, the transaction cannot be reversed.
5. Reduces Systemic Risk: Since transactions are settled individually and instantly.

Limitations of RTGS:
1. Minimum Limit: Cannot be used for transactions below ₹2 lakh.
2. No Reversal: Mistaken transfers are difficult to reverse without beneficiary’s consent.
3. Dependent on Bank Systems: Downtime or technical issues can delay processing.
4. Slightly Complex for Individuals: Compared to UPI or IMPS, it may seem less user-
friendly for small users.

RTGS vs. Other Payment Modes:

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Feature RTGS NEFT IMPS UPI

Near real-time
Settlement Real-time (Gross) Real-time Real-time
(Batch)

Min Limit ₹2,00,000 No minimum No minimum No minimum

₹1-5 lakh
Max Limit No upper limit No upper limit ₹5 lakh (varies)
(varies)

Timing 24x7x365 24x7x365 24x7 24x7

High-value Instant small

Best For General transactions Everyday use
transfers payments

RTGS is a fast, reliable, and secure method of transferring large sums of money instantly across
banks in India. It is especially useful for corporates, institutions, and individuals dealing with
high-value transactions. Being operated by the RBI, it provides a strong level of confidence
and credibility in India’s digital banking system.

EFT – Electronic Funds Transfer

Meaning:
Electronic Funds Transfer (EFT) refers to the electronic movement of money from one bank
account to another without the need for paper-based documents like cheques or demand drafts.
It is a broad term used to describe all types of digital transactions initiated through electronic
systems such as computers, ATMs, mobile phones, or payment terminals.
In India, EFT previously referred to a specific RBI mechanism for fund transfer. However, now
it has become a generic term encompassing several digital transfer systems like NEFT, RTGS,
IMPS, UPI, etc.

Purpose of EFT:
• To facilitate quick, safe, and paperless transfer of funds.
• To support the growth of digital banking and cashless economy.
• To reduce the risks and delays involved in physical payment methods.

Types of EFT in India:

1. NEFT (National Electronic Funds Transfer) – Near real-time transfers in batches.
2. RTGS (Real-Time Gross Settlement) – Immediate high-value transactions.
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3. IMPS (Immediate Payment Service) – Real-time fund transfer available 24x7.

4. UPI (Unified Payments Interface) – Instant mobile-based transfer using virtual IDs.
5. ECS (Electronic Clearing Service) – For bulk and recurring payments like salaries or
utility bills.
6. ATM Transfers – Transfers between accounts via ATMs.
7. Debit/Credit Card Payments – For online or point-of-sale transactions.
8. Mobile Wallet Transfers – Transfers through wallets like Paytm, PhonePe, etc.

How EFT Works (Generic Process):

1. Initiation: The sender initiates the transaction using an online platform (e.g., mobile
app, internet banking, ATM).
2. Authorization: The system verifies the user and the transaction details.
3. Processing: The transaction is sent electronically to the bank or payment system.
4. Settlement: The recipient’s account is credited within a few seconds to a few hours,
depending on the type of EFT.

Key Features of EFT:

• Paperless and automated
• Convenient and accessible 24x7
• Includes multiple systems (NEFT, RTGS, IMPS, etc.)
• Supports all types of users: individuals, businesses, and institutions
• Operated under RBI guidelines in India

Advantages of EFT:
1. Speed: Fast transaction processing, often in real time.
2. Convenience: Accessible via mobile apps, internet banking, or ATMs.
3. Cost-effective: Lower processing costs than paper-based systems.
4. Secure: End-to-end encryption and RBI regulations ensure safety.
5. Environmentally Friendly: Reduces paper usage and physical handling.
6. Reliable for Recurring Payments: ECS and auto-debit services improve reliability.
Disadvantages of EFT:
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1. Dependence on Technology: Requires internet/mobile access and electricity.

2. Cybersecurity Risks: Susceptible to phishing, hacking, or malware if not protected.
3. Transaction Failures: Due to incorrect details or server issues.
4. User Awareness Required: Users must understand how to operate systems safely.

EFT vs. Other Payment Methods:

Aspect EFT (Generic) Cheque/DD Cash

Mode Electronic Physical Physical

Processing Time Seconds to Hours 1-3 working days Instant

Cost Low to none Printing & handling Risk of handling

Safety High (if secure) Moderate Risk of theft

Convenience Very High Low Moderate

EFT is the backbone of modern digital banking, enabling fast, safe, and reliable fund transfers
across individuals and institutions. With widespread adoption of systems like NEFT, RTGS,
UPI, and IMPS, EFT has transformed the way financial transactions are conducted, supporting
India’s journey towards a digital and cashless economy.

UPI – Unified Payments Interface

Meaning:
Unified Payments Interface (UPI) is a real-time payment system developed by the National
Payments Corporation of India (NPCI) that facilitates instant money transfers between two
bank accounts using a mobile device. It allows users to send or receive money anytime using
a Virtual Payment Address (VPA) without the need to remember bank account details or IFSC
codes.
UPI has revolutionized digital payments in India by enabling 24x7 transfers, even on holidays.
Unified Payments Interface (UPI) is a real-time payment system that enables immediate money
transfer between bank accounts through a mobile device. It is a revolutionary payment
mechanism in India that allows a single mobile application to access multiple bank accounts,
enabling fund transfers and merchant payments 24x7 using a Virtual Payment Address (VPA).
Developer and Regulator:
• Developed by: National Payments Corporation of India (NPCI)
• Launched in: April 2016 (pilot), available to public from August 2016
• Regulated by: Reserve Bank of India (RBI)
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• Supported by: Indian Banks Association (IBA)

Objectives of UPI:
• Simplify and unify multiple payment systems into a single interface.
• Enable seamless peer-to-peer (P2P) and peer-to-merchant (P2M) transactions.
• Promote a cashless, digital economy in India.
• Offer real-time settlement with high security and ease of use.
Working Mechanism of UPI:
1. User Registration:
o Install a UPI-enabled app like PhonePe, Google Pay, Paytm, BHIM, or a bank’s
app.
o Link your bank account using your mobile number registered with the bank.
o Create a Virtual Payment Address (VPA) – e.g., yourname@upi.
2. Authentication:
o Set a secure UPI PIN (4 or 6 digits) linked to the debit card of the bank account.
3. Fund Transfer Process:
o To send money, enter the receiver’s VPA or scan their QR code.
o Input the amount, confirm, and authenticate with the UPI PIN.
o Funds are instantly transferred and confirmation is received by both parties.
Features of UPI:

Feature Description

Real-Time Transfers Transfers happen within seconds, 24x7 including holidays.

No need to share IFSC or account numbers. Use VPAs like

VPA-Based Transfers
xyz@upi.

Single Interface for All

Users can link multiple bank accounts in a single app.
Banks

Interoperability Any UPI app can send money to any other UPI ID across banks.

Payments can be made by scanning merchant/customer QR

QR Code Support
codes.

Two-Factor Authentication Ensures secure transactions with device and PIN verification.
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Feature Description

Enables recurring payments like subscriptions and EMI

AutoPay
payments.

UPI Lite Allows low-value transactions (under ₹200) without PIN.

UPI 123Pay Enables UPI transactions via feature phones using IVR.

UPI is now expanding globally with countries like Singapore

International Use
and UAE.

Advantages of UPI:
1. Simplicity: User-friendly interface with minimal inputs required.
2. Speed: Instantaneous transactions across any bank.
3. Security: Uses two-factor authentication (mobile + UPI PIN) and device binding.
4. Low or Zero Cost: No charges for individuals for UPI transactions.
5. Availability: Works round-the-clock, including weekends and holidays.
6. Flexibility: One app can control multiple bank accounts.
7. Supports Recurring Payments: AutoPay helps manage subscriptions.
8. Supports Multiple Use Cases: Person-to-person, merchant payments, utility bills,
donations, etc.
9. Reduced Dependency on Cash: Encourages digital economy.
10. Inclusive: Reaches rural and semi-urban populations via simple mobile phones (with
UPI 123Pay).
Disadvantages of UPI:
1. Dependent on Mobile & Internet: Not ideal in areas with poor connectivity.
2. Fraud Risks: Phishing, fake apps, and social engineering attacks can target users.
3. Daily Transaction Limits: Most banks limit to ₹1–5 lakh per day.
4. Technical Issues: Bank server or app downtimes may delay or fail transactions.
5. UPI PIN Confidentiality: Users unaware of fraud risks may reveal PIN under pressure.
6. Digital Literacy Gap: Some population segments still struggle with smartphone usage.

Use Cases of UPI:

• Sending/receiving money from friends or family.
 FINANCE & BANKING 21BSO662

• Paying bills (electricity, DTH, gas, water, etc.).

• Paying at retail outlets via QR code scanning.
• Recharging mobile phones or FASTag.
• Donations to NGOs or religious institutions.
• Auto-payments for Netflix, insurance premiums, etc.

Popular UPI-Enabled Apps in India:

App Name Developed By

BHIM NPCI

Google Pay Google

PhonePe Flipkart Group

Paytm Paytm Payments Bank

Amazon Pay Amazon

WhatsApp Pay Meta (Pilot phase)

SBI YONO State Bank of India

iMobile ICICI Bank

International Expansion of UPI:

UPI is being integrated with payment systems of other countries such as:
• Singapore (PayNow)
• UAE
• Nepal
• Bhutan
• France (being piloted)
This enables Indian users to pay internationally using UPI, and vice versa.

Security Measures in UPI:

• Two-Factor Authentication (2FA) as per RBI mandate.
• End-to-end encryption.
• Device and SIM binding – UPI works only on registered devices.
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• Daily limits and maximum transaction capping.

• NPCI and RBI constantly monitor for suspicious activities.

Comparison Table – UPI vs Other Fund Transfer Methods:

Criteria UPI NEFT RTGS IMPS

Speed Instant 30 mins – 2 hrs Real-time Instant

Availability 24x7, 365 days 24x7 24x7 24x7

Min Limit No minimum No minimum ₹2 lakh No minimum

₹1–5 lakh ₹5 lakh (bank-

Max Limit No limit No upper limit
(varies) specific)

Bank Mobile/Internet
Channel Mobile apps Bank website/app
website/app banking

Nil (for
Charges Varies by bank Varies by bank Varies by bank
individuals)

Best Used P2P, retail, QR Scheduled/batch High-value

Urgent transfers
For pay transfers transfers

UPI Growth Trends (As of 2024)

• Monthly Transactions: Over 10 billion+ transactions/month.
• Transaction Volume: ₹15–18 lakh crore monthly.
• Market Penetration: Accepted by 70+ banks and 300+ third-party apps.
• Government Initiatives: Cashback, BHIM Aadhaar Pay, and UPI Lite are promoting
usage.
UPI has transformed India’s digital payment landscape with its simplicity, speed, and security.
As it continues to evolve with features like UPI Lite, AutoPay, Credit on UPI, and international
collaborations, it is paving the way toward a more inclusive, cashless, and tech-driven
economy.
UPI is not just a payment tool; it is a cornerstone of India’s digital financial infrastructure.
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IMPS (Immediate Payment Service) – Detailed Notes

Introduction:
IMPS stands for Immediate Payment Service. It is a real-time interbank electronic fund transfer
service in India, allowing instant transfer of funds between bank accounts through mobile
phones, internet banking, ATM, or SMS. Unlike NEFT or RTGS, IMPS is available 24x7, 365
days, including Sundays and bank holidays.

Developer and Regulator:

• Developed and Managed by: National Payments Corporation of India (NPCI)
• Launched: Pilot in November 2010, public launch in 2011
• Regulated by: Reserve Bank of India (RBI)

Objective of IMPS:
• To enable real-time fund transfer using mobile banking and other digital channels.
• To offer an interbank electronic payment system that is available 24x7.
• To support digital financial inclusion by offering simple, fast, and secure transactions.

How IMPS Works:

There are multiple channels through which IMPS can be initiated:
1. Mobile Banking using MMID & Mobile Number:
o Sender and receiver both must register for mobile banking and get an MMID
(Mobile Money Identifier).
o Sender uses recipient’s mobile number + MMID to send money.
2. Using Account Number + IFSC:
o More common now than MMID.
o Enter receiver’s bank account number and IFSC to send money instantly.
3. Internet Banking or Mobile Banking Apps:
o Log into the app or website, add beneficiary (optional), and initiate IMPS
transfer.
4. ATM & SMS Channels:
o Some banks offer IMPS via ATMs or SMS-based banking.
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Key Details of IMPS:

Parameter Description

Full Form Immediate Payment Service

Type Real-time fund transfer system

Availability 24x7, 365 days

Transaction Speed Instant (usually within seconds)

Channels Mobile, Internet banking, ATM, SMS

Controlled by NPCI, under RBI

Transaction Modes Mobile no. + MMID, Account no. + IFSC

Max Limit ₹5 lakh per transaction (may vary by bank)

Min Limit Usually ₹1 (some banks may have ₹10)

Settlement Real-time, individual transaction basis

Charge Usually ₹0 for individuals; else minimal

IMPS Features:

Feature Description

Instant Transfers Funds are transferred in real time across India.

Available through mobile apps, internet banking, ATM, and

Multi-Channel Access
SMS.

24x7 Availability Works 24 hours a day, even on bank holidays and Sundays.

Transactions require authentication via PIN or password and

Secure
encrypted communication.

Supports Small & Medium

Suitable for retail, utility payments, and P2P transactions.
Transfers

Can send money to any bank participating in the IMPS

Interbank Transactions
network.

IMPS Reference Number Each transaction has a unique number for tracking and dispute
(IRN) resolution.
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Advantages of IMPS:
1. Real-time Transfers – Fast and instant transaction processing.
2. Round-the-Clock Availability – Unlike NEFT or RTGS, works on weekends and
holidays.
3. Flexible Access Channels – Mobile, internet banking, ATMs, SMS banking.
4. Wide Accessibility – Covers rural, semi-urban, and urban areas.
5. Secure and Reliable – Multi-level authentication and strong encryption.
6. Low Transaction Costs – Nominal or zero charges for most personal users.
7. No Need to Add Beneficiary (optional) – Some banks allow direct transfer without
adding beneficiaries.
8. Trackable – Reference numbers provided for each transaction.

Disadvantages of IMPS:
1. Transaction Limit – Maximum cap of ₹5 lakh per transaction (may vary by bank).
2. Dependent on Tech Infrastructure – Internet, mobile apps, or ATM needed.
3. Bank Server Downtime – May fail if sender/receiver bank systems are down.
4. Risk of Fraud – Phishing and wrong account transfers due to incorrect input.
5. Not Ideal for Very High-Value Transactions – RTGS is preferred for transfers above
₹5 lakh.

Use Cases of IMPS:

• Sending money to family or friends instantly.
• Paying small utility bills or vendor payments.
• Transferring money across banks within seconds.
• Immediate remittance in emergencies (medical, travel).
• Online shopping and e-commerce payments (if supported).
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IMPS vs NEFT vs RTGS vs UPI:

Feature IMPS NEFT RTGS UPI

30 minutes to 2
Speed Instant Real-time Instant
hours

Time 24x7 24x7 24x7 24x7

Min
₹1 (bank-specific) No minimum ₹2 lakh No minimum
Limit

Max ₹1–5 lakh (varies

₹5 lakh No limit No upper limit
Limit by bank)

Small to medium Scheduled High-value P2P, P2M, QR

Use Case
payments transactions transactions Payments

Mobile, ATM,
Channels Netbanking Netbanking Mobile apps
Netbanking

Security in IMPS:
• Two-factor authentication: login + transaction PIN.
• Encrypted data transmission.
• SMS/Email alerts for every transaction.
• Real-time transaction status tracking via reference number.
IMPS has revolutionized banking by enabling real-time money transfers anytime, anywhere. It
fills the gap between high-value RTGS transactions and batch-processed NEFT transfers. By
offering instant, secure, and accessible transactions, IMPS has become a key tool for India's
journey toward digital banking and financial inclusion.
ATM (Automated Teller Machine)
Introduction:
ATM (Automated Teller Machine) is an electronic banking outlet that allows customers to
perform basic financial transactions without the need for a bank representative or teller. ATMs
are installed in banks, public places, shopping malls, and even remote locations to provide 24x7
access to banking services.
History & Evolution:
• First ATM in the world: Installed by Barclays Bank in London in 1967.
• First ATM in India: Installed by HSBC in Mumbai in 1987.
• Operated under various networks such as Visa, MasterCard, RuPay, Cirrus, etc.
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Types of ATMs:
1. On-site ATM: Located inside or attached to the bank branch.
2. Off-site ATM: Located at places other than bank premises (e.g., malls, airports).
3. White Label ATM: Set up by non-bank entities (licensed by RBI) – available to
customers of all banks.
4. Brown Label ATM: Owned by banks but operated by third-party vendors.
5. Green Label ATM: Used for agricultural transactions.
6. Orange Label ATM: Used for share transactions.
7. Pink Label ATM: Meant exclusively for women for safe banking.
8. Biometric ATM: Uses fingerprint or iris scan for authentication.
9. Mobile ATM: Vehicle-mounted ATMs that provide service in remote/rural areas.

Features of ATM:

Feature Description

24x7 Accessibility Available anytime, day or night.

Self-service banking Withdraw, deposit, transfer funds, pay bills.

PIN-based security Personal Identification Number (PIN) protects account access.

Multilingual Interface Supports multiple Indian languages for user convenience.

Account Enquiry Check balances, mini-statements, recent transactions.

Cash Withdrawal Fast access to cash without visiting a branch.

Use ATMs of other banks via shared networks (e.g., NFS,

Interbank Facility
VISA).

Cardless Withdrawal
Some ATMs allow UPI-based QR or OTP withdrawal.
(new)

Services Provided by ATMs:

1. Cash Withdrawal
2. Balance Inquiry
3. Mini Statement
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4. PIN Change
5. Funds Transfer (Intra & Inter Bank)
6. Cash/Cheque Deposit (in cash deposit-enabled ATMs)
7. Utility Bill Payment
8. Mobile/DTH Recharge
9. Credit Card Bill Payment
10. Cardless Withdrawal (via mobile/UPI)

Advantages of ATMs:

Advantage Description

24x7 Availability Operates round the clock, even on holidays.

Time-saving Quick cash withdrawal without queueing at banks.

Convenient Access Found in cities, towns, villages, and even mobile vans.

Reduced Bank Workload Reduces pressure on human tellers and bank staff.

Interbank Usage Customers can use ATMs of other banks (with nominal fees).

Language Options Supports vernacular languages for ease of use.

Secure Transactions PIN-protected and monitored via CCTV.

Improves Financial Inclusion Brings banking to the unbanked and underbanked.

Disadvantages of ATMs:

Disadvantage Description

Limited Cash
ATMs may run out of cash during holidays or peak hours.
Availability

Fraud Risks ATM frauds like skimming, phishing, and card cloning.

Technical Failures May be temporarily out of service due to power or network issues.

Fee on Other Bank ATMs Limited free withdrawals per month from other banks' ATMs.

Dependency on Card Card lost/damaged means no access (unless UPI-enabled).

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Disadvantage Description

Rural Area Access Issues Less penetration in deep rural areas (though improving).

ATM Security Measures:

• Use of PIN and OTP for validation.
• EMV chip cards for added protection.
• CCTV surveillance in ATM kiosks.
• One-time password (OTP) for sensitive operations.
• RBI guidelines for timely refilling, software updates, and biometric integration.

ATM Withdrawal Limit:

• Daily Limit: Varies by bank and card type (₹10,000 – ₹50,000/day typical).
• Free Transactions: 3–5 free transactions/month at other banks; unlimited at own bank
ATMs (conditions apply).
• Beyond Limit Charges: ₹15–20 per transaction beyond free limit.

ATM vs Debit Card vs Credit Card:

Feature ATM Card Debit Card Credit Card

Mainly for ATM ATM + Shopping + Borrowed money, repay with

Purpose
transactions Online use interest

Bank Not linked; based on credit

Must be linked Must be linked
Account limit

Payment
Own funds Own funds Bank's funds (loan)
Mode

Interest charged on unpaid

Interest None None
amounts

ATM is one of the most revolutionary innovations in banking technology. It empowers

customers to handle banking transactions conveniently and independently. With evolving
features like cardless withdrawal, biometric verification, and multi-language interfaces, ATMs
are playing a vital role in financial inclusion and cash accessibility, even as digital banking
gains momentum.
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DEBIT CARD
Introduction
A Debit Card is a payment card issued by a bank or financial institution that allows the
cardholder to access funds directly from their bank account. It is used for cash withdrawals,
online transactions, and Point-of-Sale (POS) payments. Unlike credit cards, debit cards do not
involve borrowing – the amount is immediately deducted from the user’s account.
A Debit Card is a plastic or virtual card linked to a savings or current account. When a
transaction is made using the debit card, the amount is instantly debited from the bank account.
Issued By
• Commercial banks (e.g., SBI, HDFC, ICICI)
• Regional rural banks
• Cooperative banks
• Payment service providers in partnership with banks
Supported networks:
• Visa
• MasterCard
• RuPay
• Maestro
• American Express (rare)

Key Features of Debit Cards

Feature Description

Linkage Linked to a savings or current account

Funds Spends own funds; no credit is given

Transaction Type Online, offline (POS), and ATM

Authentication PIN or OTP for secure transactions

Withdrawal Limit Daily limits set by the bank

Accessibility National and international use (if enabled)

Form Factor Physical plastic card or digital/virtual card

Technology Used Magnetic stripe, EMV chip, and contactless (NFC)

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Feature Description

Mobile Wallet Integration Can be linked with Google Pay, PhonePe, Paytm, etc.

Types of Debit Cards

1. Classic Debit Cards – Basic cards with limited withdrawal and transaction limits.
2. Platinum or Premium Debit Cards – Higher limits, extra benefits.
3. Contactless Debit Cards (NFC) – Tap and pay feature for quick payments.
4. International Debit Cards – Usable globally for foreign currency transactions.
5. Prepaid Debit Cards – Reloadable cards, often not linked to a bank account.
6. Virtual Debit Cards – Digital-only cards used for online transactions.

Uses of Debit Cards

• ATM withdrawals
• Retail POS transactions
• Online shopping
• Utility bill payments
• Mobile/DTH recharges
• Booking movie tickets or travel
• Linking to UPI apps
• Subscription services (Netflix, OTT, etc.)

Advantages of Debit Cards

1. Instant deduction: The amount is directly debited from your account.
2. No debt or interest: Spend only what you have.
3. Convenient: Avoids carrying cash.
4. Widely accepted: Accepted at millions of locations and ATMs.
5. Budget control: Encourages disciplined spending.
6. Online payments: Enables secure internet transactions.
7. Safe and secure: Protected with PIN, OTP, chip technology, and transaction alerts.
8. No annual charges (in many cases): Especially for basic cards.
 FINANCE & BANKING 21BSO662

Disadvantages of Debit Cards

1. No credit facility: Cannot spend beyond available balance.
2. Limited rewards: Compared to credit cards, fewer cashback or points.
3. Insufficient fraud protection: Immediate fund deduction can cause losses.
4. Daily transaction limits: May not be suitable for high-value payments.
5. No credit score improvement: Doesn’t help build credit history.
6. Risk of over-drafting: If linked to an overdraft facility, can lead to charges.

Security Features
• EMV Chip Technology – Protects against skimming and fraud.
• PIN Authentication – Required at ATMs and POS terminals.
• OTP for Online Transactions – Enhances security during e-commerce payments.
• Transaction Alerts – SMS and email for every debit transaction.
• Blocking Options – Cards can be blocked via SMS, net banking, or mobile apps.

Regulatory Guidelines (India)

• RBI mandates secure PIN-based and EMV chip card issuance.
• Tokenization: Allows cardholders to store tokens instead of card details for online
payments.
• Zero liability policy: In case of timely reporting of fraud or loss.
Debit cards are essential tools for safe, cashless, and accountable personal finance
management. Ideal for individuals who prefer to avoid debt, maintain spending discipline, and
make easy withdrawals and payments.

CREDIT CARD – Detailed Notes

Introduction
A Credit Card is a financial instrument issued by a bank or financial institution that allows
cardholders to borrow funds up to a pre-approved limit to pay for goods and services. The
borrowed amount must be repaid either in full or in part by the due date, and interest is charged
on any unpaid balance.
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A Credit Card is a plastic or virtual card that gives the holder access to a line of credit.
Cardholders can make purchases, withdraw cash, and pay bills, with the understanding that the
bank pays on their behalf and the cardholder repays the bank later.
Issued By
• Commercial banks (SBI, HDFC, ICICI, Axis Bank, etc.)
• Non-banking financial companies (NBFCs)
• Co-branded partners (e.g., Amazon Pay ICICI Card, Flipkart Axis Card)
Supported networks:
• Visa
• MasterCard
• RuPay
• American Express
• Diners Club
Key Features of Credit Cards

Feature Description

Credit Limit Pre-set maximum spending limit based on income and credit score

Revolving Credit Unpaid balance carried to the next billing cycle with interest

Billing Cycle Typically 30 days, with 15–20 days grace period for repayment

Minimum Due Minimum payment (usually 5%) must be made to avoid penalty

Cash Withdrawal
Allowed but with high interest and processing charges
Facility

Interest-Free Period Usually up to 45–50 days if paid in full

Reward Programs Cashback, points, discounts, air miles, etc.

Form Factor Physical or virtual cards with EMV chip and NFC (tap and pay)

Uses of Credit Cards

• Shopping (online and offline)
• Travel bookings (flights, trains, hotels)
• Utility bill payments
• Fuel payments (fuel surcharge waivers)
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• Emergency expenses
• EMI conversion of large purchases
• Building credit history and score
• Access to lounge and concierge services (in premium cards)

Advantages of Credit Cards

1. Convenient credit facility – Buy now, pay later.
2. Interest-free credit period – Up to 50 days if full payment is made.
3. Rewards and cashback – Points, discounts, vouchers, and more.
4. EMI options – Convert big purchases into manageable EMIs.
5. Builds credit score – Timely repayments boost creditworthiness.
6. Purchase protection – Many cards offer theft/damage protection.
7. Global acceptance – Widely accepted internationally.
8. Emergency funds – Useful during cash crunch or unplanned expenses.

Disadvantages of Credit Cards

1. High interest rates – Usually 24–48% p.a. if dues are unpaid.
2. Debt trap risk – Easy to overspend and accumulate debt.
3. Penalty charges – Late fees, over-limit charges, etc.
4. Annual fees – Some cards have high renewal or joining fees.
5. Hidden charges – Currency conversion fees, GST, etc.
6. Credit score impact – Missed payments damage your credit history.

Security Features
• EMV Chip and PIN authentication
• OTP for online payments
• Two-factor authentication
• Transaction alerts via SMS and email
• Card lock/unlock via mobile app
• Zero liability on fraud if reported promptly
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Types of Credit Cards

Type Description

Basic Credit Card Entry-level, lower credit limits

Reward/Cashback Cards Earn points, cashback on spends

Travel Cards Benefits on flights, hotels, lounge access

Fuel Cards Surcharge waiver on fuel transactions

Co-branded Cards Partnered with brands (e.g., Amazon, Flipkart)

Premium Cards High-end features: concierge, golf access, etc.

Secured Credit Cards Issued against fixed deposit, good for new users

Credit Card Lifecycle (Example)

1. Swipe/Transaction – Customer purchases using the card.
2. Billing – Statement generated after billing cycle ends.
3. Grace Period – Time to repay without interest.
4. Payment – Full or partial payment made.
5. Revolving Credit – Interest applies if full payment not made.

RBI Guidelines (India)

• Interest and charges must be transparently disclosed.
• Users can opt-out of insurance or add-on services.
• Grace period must be honored if full payment is made.
• Cardholders must be alerted for all transactions.
• RBI’s new rules mandate tokenization for card safety in online payments.

Credit cards offer flexibility, rewards, and convenience, making them powerful tools for both
personal finance and credit building. However, they require responsible use to avoid high
interest and debt. Educating users on repayment discipline is key to reaping their full benefits.
 FINANCE & BANKING 21BSO662

Difference Between Debit Card and Credit Card

Basis of
Debit Card Credit Card
Comparison

Uses money directly from the Uses borrowed funds from the
Source of Funds
cardholder’s bank account issuing bank (credit limit)

Credit Facility No credit facility Credit facility available

Limited to available balance in the

Spending Limit Limited to pre-approved credit limit
account

Interest Interest charged on unpaid dues

No interest if used normally
Charges (24%–48% p.a.)

Payment due monthly; option to pay

Repayment Immediate deduction from account
in full or minimum due

May have joining/annual fees,

Annual Fees Usually low or none
especially for premium cards

Reward Offers rewards, cashback, miles,

Basic or none
Programs discounts, etc.

Credit Score Affects credit score based on usage

Does not affect credit score
Impact and repayment

Overdraft Not applicable (separate from credit

May allow if enabled
Facility limit)

High risk (can lead to debt trap if

Risk of Debt Low risk (spend own money)
misused)

ATM withdrawals, online/offline Online/offline purchases, bill

Usage
purchases payments, EMI, etc.

Security PIN, OTP, EMV chip, tokenization for

PIN-based with EMV chip
Features online safety

Common Use High-value purchases, credit-based

Day-to-day personal spending
Case spending

• A Debit Card is linked to your bank account and lets you spend only what you have.
• A Credit Card offers a loan or credit limit which you repay later, often with interest
if not paid on time.
 FINANCE & BANKING 21BSO662

MICR Cheques
MICR stands for Magnetic Ink Character Recognition.
It is a technology used to verify the authenticity of paper documents, especially cheques, using
special magnetic ink and characters printed in a unique font.
Meaning of MICR Cheque
A MICR Cheque is a cheque that contains a unique MICR code printed at the bottom using
magnetic ink. This code helps in the faster and more secure processing of cheques in banks.
What is MICR Code?
The MICR Code is a 9-digit numeric code printed at the bottom of a cheque.
It provides vital information to identify:
• Bank (first 3 digits)
• City (next 3 digits)
• Branch (last 3 digits)
For example:
MICR Code: 560002012
• 560 → Bangalore city
• 002 → Bank (SBI)
• 012 → Specific branch (e.g., MG Road Branch)
Components of MICR Line on Cheque
The MICR line is printed at the bottom of the cheque and includes:

Component Description

Cheque Number Usually a 6-digit unique number

MICR Code 9-digit code (City + Bank + Branch)

Transaction Code Indicates account type (e.g., savings, current)

Example of MICR line:

123456 560002012 001
Importance in Banking
• Used in Cheque Truncation System (CTS)
• Helps in automated cheque clearing
• Reduces chances of fraud and forgery
• Enables high-speed processing at clearinghouses
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Advantages of MICR Cheques

1. Faster Processing – Enables quick cheque clearance through electronic readers.
2. High Security – Difficult to forge due to use of magnetic ink and specialized font.
3. Accuracy – Reduces manual errors during cheque verification.
4. Standardization – Ensures uniformity across banks for easier interbank transactions.
5. Automated Reading – Machines can read even if ink is faint (if magnetized).

Limitations of MICR Cheques

1. Requires special equipment – Magnetic readers are costly.
2. Physical cheque needed – Not applicable for paperless or fully digital banking.
3. Limited information – MICR code only identifies bank, city, and branch.
4. Wear and Tear – If the MICR line is damaged, machine cannot read it.

MICR vs IFSC Code – Quick Comparison

Basis MICR Code IFSC Code

Used For Cheque clearance Online fund transfers (NEFT/RTGS/IMPS)

Format 9-digit numeric 11-character alphanumeric

Technology Magnetic ink recognition Digital code-based

Visibility Printed on cheque Printed on cheque & available online

MICR Cheques play a key role in efficient cheque clearing, making banking faster, safer, and
automated. Though digital payments are growing, MICR remains crucial in physical cheque-
based systems.

Cryptocurrency – Detailed Notes

Cryptocurrency is a form of digital or virtual currency that uses cryptography for secure
financial transactions.
It is decentralized and operates on blockchain technology, without the need for a central
authority like a bank or government.
• The word "crypto" means secret or hidden, referring to the use of encryption techniques.
• Currency refers to its role in exchanging value.
 FINANCE & BANKING 21BSO662

• Cryptocurrency is stored in digital wallets and can be used for buying goods and
services or as an investment.
Key Features of Cryptocurrency

Feature Description

Decentralization Not controlled by any government or central bank

Blockchain Technology Transactions are recorded in blocks and linked securely

Encryption High-level cryptography secures the network and transactions

Most cryptocurrencies have a fixed supply cap (e.g., Bitcoin: 21

Limited Supply
million)

Peer-to-Peer
Direct transactions between users without intermediaries
Transactions

Transparency Transactions are publicly recorded on the blockchain ledger

Anonymity User identities are hidden behind wallet addresses

Global Access Can be accessed from anywhere via the internet

Popular Cryptocurrencies

Year
Cryptocurrency Symbol Creator Unique Feature
Launched

Satoshi First and most well-known

Bitcoin BTC 2009
Nakamoto cryptocurrency

Ethereum ETH Vitalik Buterin 2015 Smart contracts and DApps

Ripple XRP Ripple Labs 2012 Fast cross-border payments

Faster block generation than

Litecoin LTC Charlie Lee 2011
Bitcoin

Started as a meme, gained

Dogecoin DOGE Billy Markus 2013
popularity

How Does Cryptocurrency Work?

1. Digital Wallet – Store and manage your cryptocurrency (e.g., mobile apps, hardware
wallets).
 FINANCE & BANKING 21BSO662

2. Blockchain – A distributed ledger that records every transaction in chronological order.

3. Mining – The process of validating and adding transactions to the blockchain (mainly
in Bitcoin).
4. Transactions – Users send/receive crypto using wallet addresses; verified by network
nodes.
Advantages of Cryptocurrency

Advantage Explanation

Decentralized System Reduces government/bank control and interference

Lower Transaction Fees Especially for international payments compared to banks

Fast Transactions Instant or near-instant global transfers

Secure and Encrypted Highly secure using cryptographic technology

Access to Financial Services Helps the unbanked population participate in finance

Transparency All transactions are recorded and visible on public blockchain

Investment Opportunities High potential returns (but also risk)

Disadvantages / Risks of Cryptocurrency

Disadvantage Explanation

High Volatility Prices fluctuate rapidly and unpredictably

Lack of Regulation Unclear legal framework in many countries

Risk of Theft Prone to hacking, phishing, wallet loss

Irreversible Transactions No refunds once transaction is done

Illegal Use Can be used in money laundering, darknet markets

Technical Knowledge Requires some understanding of digital systems and wallets

Environmental Impact Mining consumes large amounts of electricity (especially Bitcoin)

Cryptocurrency in India
• RBI Stance: Earlier restricted banks from dealing with crypto (2018), but Supreme
Court lifted ban in 2020.
• Legal Status: Not illegal, but not recognized as legal tender.
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• Regulation: Government is working on cryptocurrency regulation bills.

• Taxation: 30% tax on gains from crypto trading, 1% TDS on transactions (as per
Budget 2022).

Future of Cryptocurrency
• Growing adoption of CBDCs (Central Bank Digital Currencies)
• Integration with DeFi (Decentralized Finance) systems
• Use in NFTs, smart contracts, and tokenized assets
• Governments and regulators working on frameworks to regulate and monitor crypto
Cryptocurrency represents a revolution in digital finance, offering exciting possibilities but also
significant challenges. As it evolves, it is likely to reshape global transactions, investments, and
financial systems.
Central Bank Digital Currency (CBDC) – Detailed Notes
Central Bank Digital Currency (CBDC) is a digital form of a country’s legal tender issued and
regulated by the central bank (e.g., RBI in India).
Unlike cryptocurrencies, it is centralized, stable, and backed by the government.
CBDC refers to the digital version of fiat currency (like INR, USD, etc.) issued by a central
authority. It is not printed but exists electronically, representing a direct liability on the central
bank.

💡 Example: In India, the Digital Rupee (e₹) is the CBDC issued by the Reserve Bank of India
(RBI).
Key Features of CBDC

Feature Description

Issued by Central Bank Unlike crypto, CBDCs are backed and regulated by the government

Legal Tender Accepted as a medium of payment and settlement

Digital Form Exists electronically, but can be used like cash

Stable Value Pegged to the value of the fiat currency

Two Types Retail (for individuals) and Wholesale (for financial institutions)

Types of CBDC

Type Description

Issued for general public use – like digital cash (e.g., e₹-R in
Retail CBDC (CBDC-R)
India)
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Type Description

Wholesale CBDC (CBDC- Used by banks and financial institutions for interbank
W) settlements

CBDC vs Cryptocurrency

Basis CBDC Cryptocurrency

Issuer Central bank (e.g., RBI) Decentralized, private or public

Legal Status Legal tender Not recognized as legal tender

Volatility Stable (linked to fiat currency) Highly volatile

Regulation Regulated Often unregulated or semi-regulated

Backed By Government No central backing

Examples Digital Rupee, Digital Yuan Bitcoin, Ethereum

Advantages of CBDC

Advantage Description

Reduces Physical Cash Cost-effective and eco-friendly

Financial Inclusion Easy access to unbanked/remote population

Secure Payments Government-backed, less risk of fraud

Faster Settlements Instant domestic and cross-border transfers

Monetary Control Helps central banks control inflation, interest, money supply

Transparency Clear audit trail, reduces black money

Boosts Digital Economy Encourages innovation and digital payments

Disadvantages / Concerns

Disadvantage Explanation

Privacy Concerns Government may track transactions

Cybersecurity Risks Vulnerable to hacking or cyber attacks

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Disadvantage Explanation

Impact on Banks May reduce bank deposits if people hold CBDCs instead

Cost of Implementation Requires infrastructure and digital literacy

Technological Dependency Requires stable internet and digital access

CBDC in India – Digital Rupee (e₹)

• Launched by: Reserve Bank of India (RBI)
• Pilot Programs:
o CBDC-W (Wholesale): Started Nov 2022 for interbank transactions
o CBDC-R (Retail): Launched Dec 2022 in select cities and banks
• Participating Banks: SBI, ICICI, HDFC, Kotak, and others
• Use Cases: Retail purchases, merchant payments, wholesale clearing

CBDCs represent the next evolution of money, offering the security of government-backed
currency with the convenience of digital transactions.
If implemented wisely, they can transform the monetary system, increase efficiency, and
support financial inclusion.

Types of Digital Services Provided by Banks

Banks today offer a wide range of digital banking services to make banking faster, easier, and
more accessible. These services allow customers to manage their accounts and perform
financial transactions anytime, anywhere.
1. Internet Banking / Net Banking
• Access your bank account via the bank’s website.
• Features: View account balance, transfer funds, pay bills, open deposits, etc.
• Available 24/7 with secure login credentials.
2. Mobile Banking
• Banking services through smartphone apps.
• Features: Fund transfer, mobile recharge, bill payments, loan application, etc.
• Example: SBI YONO, HDFC MobileBanking App.
3. Unified Payments Interface (UPI)
• Real-time fund transfer using mobile apps (like Google Pay, PhonePe, BHIM).
• Uses Virtual Payment Address (VPA) instead of bank account details.
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• Instant and available 24/7.

4. NEFT (National Electronic Funds Transfer)
• Electronic transfer of money between banks.
• Settled in half-hourly batches.
• Ideal for transferring larger amounts during working hours.
5. RTGS (Real Time Gross Settlement)
• Real-time, high-value fund transfers (minimum ₹2 lakh).
• Used for immediate and secure fund settlements between banks.
6. IMPS (Immediate Payment Service)
• Instant interbank transfer service available 24/7.
• Can be done via mobile, net banking, or ATMs.
7. ATM Services (Automated Teller Machine)
• Withdraw cash, check balance, transfer funds, mini-statement.
• Available 24/7 across cities and towns.
8. Debit & Credit Cards
• Used for cashless transactions online or in-store.
• Credit cards offer short-term credit; debit cards deduct directly from account.
9. E-Passbook / Online Statements
• View and download your transaction history digitally.
• Helps in financial planning and transparency.
10. SMS & Email Alerts
• Receive real-time updates on transactions, account status, and OTPs.
• Keeps customers informed and reduces fraud.
11. Digital Loan Services
• Apply for loans (home, personal, vehicle) online.
• Instant approvals and minimum documentation via banking apps.
12. Digital Wallets / Prepaid Cards
• Load money and make quick payments using apps like Paytm, PhonePe.
• Linked to bank accounts or credit/debit cards.
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13. E-KYC (Know Your Customer)

• Digital verification of identity for opening accounts or availing services.
• Uses Aadhaar, PAN, and OTP-based authentication.
14. Chatbots and Virtual Banking Assistants
• AI-powered chat services that help with account queries, FAQs, and transactions.
15. Online Investment Services
• Customers can invest in mutual funds, fixed deposits, insurance, or stocks online.
• Digital tracking and portfolio management included.

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