Payment System and Electronic Banking

Payment System and Electronic Banking (Jaiib/DBF Paper 1, Module C, Unit 2)

Dear bankers,

As we all know that  is Payment System and Electronic Banking for JAIIB Exam. JAIIB exam conducted twice in a year. So, here we are providing the Payment System and Electronic Banking (Unit-2), BANKING TECHNOLOGY (Module C), Principle & Practice of Banking JAIIB Paper-1.

♦Electronic Payment system

  • E-payment system is a way of making transactions or paying for goods and services through an electronic medium without the use of check or cash.

Automated Teller Machines (ATM)

  • The Automated Teller Machine, or ATM, enables people to withdraw and deposit money from their bank accounts using machines.
  • The Committee headed by Dr. C. Rangarajan recommended the setting up of ATM in India.

ATM Models in India

  • Online
  • Offline
  • Stand-alone
  • Networked

HWAK (The Intelligent Auto- teller and Netware Management System)

  • Intelligent auto-teller systems are a special breed of auto-teller machines capable of thinking for themselves, that means they are fast, impose less demands on your banking systems and serve the customers more like a personal banker than less sophisticated auto teller systems.
  • HWAK provides unsurpassed service even without benefit of a reliable communication network.

Benefits of HWAK are:

  • Customer satisfaction.
  • High availability
  • Online and offline auto-recovery
  • Anytime full banking service
  • Low cost, shorter queues and less number of tellers with ease of use
  • Quick and early implementation
  • Enhanced security and audit control
  • Network management
  • Predictable cost of ownership
  • Comprehensive ‘One Stop’ autobanking.

White Label ATMs (WLA)

  • Automated Teller Machines (ATMs) set up, owned and operated by non-bank entities are called “White Label ATMs” (WLAs). They provide the banking services to the customers of banks in India, based on the cards (debit/credit/prepaid) issued by banks.

Key facts related:

  • Non-bank entities shall commence setting up and operating WLAs only after it has been authorised to do so by the RBI under the Payment and Settlement Systems Act, 2007.
  • Taking over of ATMs operated by banks would not be permitted. Entities may ensure to draw a strategic plan for installation of such WLAs based on the criteria set during authorization. White Label ATM Operators (WLAO) may also indicate the value added services it proposes to offer at the WLA while seeking authorisation.
  • WLAO is permitted to have more than one Sponsor Bank. All the transactions of WLAs serviced by this Sponsor Bank would be settled through it.
  • Cash Management at the WLAs will be the responsibility of the Sponsor Bank, who may if required, make necessary arrangements with other banks for servicing cash requirements at various places.
  • WLAO may establish connectivity with any of the authorised ATM Network Operators/ Card Payment Network Operators and ensure that the settlement of all the transactions at the WLAs shall be done only in the books of the Sponsor Bank through the ATM Network Operators/ Card Payment Network Operators with whom the WLAO has established connectivity.
  • Maintenance and servicing of the WLAs shall be the sole responsibility of the WLAO.

As per the new guidelines, it has been decided to allow:

  • The WLA Operators to buy wholesale cash, above a threshold of 1 lakh pieces (and in multiples thereof) of any denomination, directly from the Reserve Bank (Issue Offices) and Currency Chests against full payment.
  • The operators to source cash from any scheduled bank, including Cooperative Banks and Regional Rural Banks.
  • The operators to offer bill payment and Interoperable Cash Deposit services, subject to technical feasibility and certification by National Payments Corporation of India (NPCI).
  • The display advertisements pertaining to non-financial products / services anywhere within the WLA premises, including the WLA screen, except the main signboard. However, it shall be ensured that the advertisements running on the screen disappear once the customer commences a transaction.
  • Banks to issue co-branded ATM cards in partnership with the authorised WLA Operators and may extend the benefit of ‘on-us’ transactions to their WLAs as well.
  • All guidelines, safeguards, standards and control measures applicable to banks relating to currency handling, and cyber-security framework for ATMs, shall also be applicable to the WLA Operators.

♦National Payment Corporation of India (NPCI)

  • National Payments Corporation of India (NPCI), an initiative of the Reserve Bank of India (RBI) and Indian Banks’ Association (IBA), is an umbrella organisation for operating retail payments and settlement systems in India.
  • NPCI has ten core promoter banks—State Bank of India, Punjab National Bank, Bank of Baroda, Canara Bank, Bank of India, HDFC Bank, Citibank, HSBC, and ICICI Bank.
  • The organisation functions under the provisions of the Payment and Settlement Systems Act, 2007 in order to create robust payments and settlement infrastructure for India.
  • It is a non-profit organisation set up under the provisions of Section 25 of Companies Act, 1956 (now, Section 8 of Companies Act, 2013). NPCI aims to provide infrastructure to the whole banking industry, both physical and electronic payment and settlements system.

Rupay Card

  • RuPay was introduced in 2012 by NPCI and functions within the domestic boundaries. RuPay cardholders can use the service for ATM withdrawals, online transactions, and card payments. RuPay card has a comparatively lower processing cost and processing time in comparison to Visa and MasterCard. RuPay cards are available all over the country including urban and rural areas.

Benefits of RuPay Card

A brainchild of RBI, RuPay is exclusively crafted to meet the needs and requirements of Indian customers. Here are some of the benefits that RuPay customers stand to get.

  • Security of Information Related to Indians:  Customer data and transaction details pertaining to RuPay card transactions will not be passed outside India.
  • Safe Transactions: With SMS alerts and notifications that are sent to the customer’s phone number after every transaction, RuPay cardholders can be ensured of a secure transaction.
  • Designed for India: RuPay cards have been customized keeping in mind the product and service requirements of Indians.
  • Greater Reach in Rural Areas: When it comes to the RuPay cards transactions, all the processing happens within the country. This results in lower cost of settlement and clearing for the transactions made using RuPay debit card. Banks will profit immensely from this as costs for transaction processing becomes affordable.
  • Greater Reach in Rural Areas: Consumers in rural areas can easily apply and get a RuPay card.
  • Payment Solutions across Platforms: RuPay debit card is designed to provide complete interoperability between payment channels including mobile technology, ATMs, cheques etc.

♦Plastic Cards

Types of Plastic Cards

Debit Card

  • Debit card is linked to the account of the cardholder i.e one who owns the cards. They are usually issued by Banks and financial institutions. When ones use a debit card the money is immediately deducted directly from one’s account associated with the card. One can buy things as long as there is money in account. A debit card is a way to “pay now” Say you have Rs 10,000 in your account. The amount you can spend, or withdraw, through your card cannot exceed this limit.

Credit Card

  • Credit Card is a small plastic card that is issued by financial institutions such as banks. As the name Credit when one buys using credit card, one is buying by taking loan. One needs to pay back later(there are no free lunches in life!). There is a limit to which one can buy on a credit card. So, even if you have only Rs 10,000 in your account but your credit limit is Rs 50,000, you are free to spend up to Rs 50,000. You could also have Rs 1,00,000 in your account, but your credit limit is only Rs 50,000. You need to repay the amount bought on credit by a due date.

Charge card

  • Charge card carries all the features of credit cards. However, after using a charge card you will have to pay off the entire amount billed, by the due date. If you fail to do so, you are likely to be considered a defaulter and will usually have to pay up a steep late payment charge. In case of credit card, one can pay late payment fee if one misses the due date. Popular charge cards are American Express cards also called as Amex cards

Smart Card

  • It contains an electronic chip that is used to store cash. There is no requirement of any signature, identification and payment authorization. The exact amount is deducted from the smart card during payment and is collected by the smart card reader machines.

Member Card

  • A small card issued to and held by a member of a club, society or other organisation, verifying the member’s membership for a given period.

Membership cards and discount offers are important elements of marketing programs designed to build customer loyalty. Consumers and business customers can apply for membership cards offered by companies that sell products or services that they buy frequently.

♦Electronic Banking

  • Electronic banking has many names like e banking, virtual banking, online banking, or internet banking. It is simply the use of electronic and telecommunications network for delivering various banking products and services. Through e-banking, a customer can access his account and conduct many transactions using his computer or mobile phone.

Anytime Banking

  • ATMs have eliminated the time limitations of customer service and offer a host of banking services, including deposit, withdrawals, requisitions, instructions and transfers.

Anywhere Banking

  • With the introduction of ATMs and tele-banking, financial details can be accessed from remote locations and basic transactions can be effected even outside the bank.

Home Banking (Corporate and Personal)

  • Home Banking Versus Online Banking Online banking is generally available for both individuals and small businesses. Additional services, such as certificates of deposit (CDs), and business, personal and mortgage loans, often still occur at physical branch locations.

Corporate Banking

  • Remote Banking has become very popular among corporate customers especially big business/ industrial house which are already automated. More and More banks are providing customer terminals right in the customer’s office, which facilitates the customers to operate the account without physically coming to the bank.

At present, by utilizing remote banking facility, corporate customers will be able to get the following services:

Getting their current balance or getting their statement of accounts for any pre-defined period

  • Ordering cheque banks
  • Ordering/ Transferring intra-bank and inter-bank fund transfers
  • Instructing stop payments of cheques
  • International remittances
  • Opening letter of credits

Personal Banking

  • Personal banking is a type of banking service and product line offered by banks to retail customers, that is consumers rather than businesses, intermediaries and institutions. Banks worldwide offer personal banking products that typically include savings and transaction facilities such as a bank transaction account, debit cards/EFT, an interest bearing floating account (savings account) and a fixed interest deposit account for a specific agreed period (certificates of deposit / term deposit) which can vary according to the bank. In addition it also includes debt facilities such as loans, mortgages and credit cards.
  • Example: The customers of personal banking services and products are commonly the general public that includes adult individuals, retirees, students, children who may be citizens, residents and non-residents depending on the requirements of the country or bank. While affluent individuals may also use personal banking services, they may also be offered private banking services by banks which can include more sophisticated services and investments.

Internet banking:

  • Most online payments are done via internet banking option. It has become one of the most convenient payment methods for transferring money. Most banks have created their own apps that can be downloaded on the phone and used any time. Through mobile devices, users can make transactions through mobile apps, net banking facilities, or internet fund transfer services such as IMPS (Immediate Payment Services), NEFT (National Electronic Fund Transfer), and RTGS (Real-time Gross Settlement).

Mobile Banking

  • Mobile banking has simplified the lives of many people and given them the option to send money, receive money, check account balance, pay bills, etc. using their mobile phones. And the best part is that banks offer mobile banking services for free.

Electronic Commerce (E-Commerce)

  • E-Commerce or Electronic Commerce means buying and selling of goods, products, or services over the internet. E-commerce is also known as electronic commerce or internet commerce. These services provided online over the internet network. Transaction of money, funds, and data are also considered as E-commerce. These business transactions can be done in four ways: Business to Business (B2B), Business to Customer (B2C), Customer to Customer (C2C), Customer to Business (C2B). The standard definition of E-commerce is a commercial transaction which is happened over the internet. Online stores like Amazon, Flipkart, Shopify, Myntra, Ebay, Quikr, Olx are examples of E-commerce websites. By 2020, global retail e-commerce can reach up to $27 Trillion.

♦Cheque Truncation

  • Section 6 of the Negotiable Instruments Act, defined cheque as “a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand”. This section has been amended in September 2002 to include truncations and cheques within the definition of cheque.

What is Cheque Truncation System?

  • Cheque Truncation System (CTS) is a cheque clearing system undertaken by the Reserve Bank of India (RBI) for quicker cheque clearance. As the term proposes, truncation is the course of discontinuing the flow of the physical cheque in its way of clearing. Instead of this an electronic image of the cheque is transferred with vital essential data. Cheque Truncation System brings elegance to the whole activity of cheque processing & clearing and offers numerous benefits to banks like time and cost savings, cost effectiveness, including human resource rationalization, business process re-engineering and enhanced customer service.

Benefits of Cheque Truncation System

  • Time, money and manpower expended on physical transfer of cheques from banks to clearing house are eliminated
  • Clearing related frauds become less plausible
  • Probability of cheques misplaced in transit is eliminated
  • CTS is more advanced and more secure.
  • It provides quicker clearance of cheques
  • Reduces operational risk and risks related to paper clearing
  • There are no extra charges levied for the collection of cheques drawn on a bank located within the grid, further providing no geographical restrictions.

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