Future Of The Banking Sector

Online banking has been shaping and shaking the financial sector world wide. But sustainability depend on proper understanding of consumer, there demand and the way they use it.

The main objective of this report is to focus on technology (especially IT) use in banking sectors. It also focuses on Limited Purpose Bank and Credit Card system. Thus objectives of the study are to:

Changes of future banking sector and impact of information systems.

Limited purpose bank and use of technology in facilitating special purpose.

Consumer banking and various consumer facilities provided by bank using information systems.

Understand and suggest the online bank on the basis findings.

Credit card banks, sub-prime lenders, and Internet primary banks [Mahboob, 2001]

FUTURE OF BANKING SECTOR

Consolidation of the banking industry: What are the prospects for, and implications of, further consolidation of the banking industry, particularly relating to safety and soundness, market concentration, and small business credit?

Combinations of commerce and banking: In future the questions may arise concerning the pros and cons of allowing common ownership and the options for regulating combinations.

Supervisory issues: The implications for bank supervision for the growing complexity of large banking organizations may be other questions.

Governance issues: There are many corporate scandals that have led to efforts to hold our corporate management and directors to a higher level of standard [Willium, 1996]

LIMITED PURPOSE BANK

Limited-purpose banks are institutions that specialize in relatively narrow business lines. Making a certain type of loan, serving as a subset of consumers and offering different innovative products some limited-purpose banks create their market. They focus niche marketing concerning limited set of activities these banking institutions can develop expertise in particular business lines and can become efficient producers. Specialization may have been promoted by technological innovations.

Credit card banks offer their customers both convenience and liquidity by providing a financial product that can be used as a means of payment and a source of instant credit. Some banks provide banking services through internet are known as primary banks [American Banker,1996]

CREDIT CARD BANK

The credit card banks provide their customers with both convenience and liquidity by offering a product that can be used as a payment device and as an open-end revolving credit. There is no fixed duration to allow credit card loans that complicates the measurement of interest- rate risk. It creates the problems of adverse selection because of mass marketing of credit cards, small average balances on individual accounts.

High interest rates results in high profitability of credit card loans, fee income, securitization, successful use of technology, and scale economies in operations. We can expect that the prosperity of credit card banks will continue [Ashust, 1996].

There are some benefits and Costs for Participants having a Credit Card.

Types of Participants

Functions

Advantages

Costs

Card holder

Purchasing of goods and services.

Carrying money without carrying cash

Convenient purchases

Having ability to payment timely to match cash flows

Easy access to credit

Bonus using

Easy access to float

Others features

Having more interest rates and fees

Some difficulties to manage credit

Merchants

Sales of goods and services.

Almost no risks of carrying credit card and selling to consumers.

Getting the guaranty of payment

Advantages of access to large number of consumer base.

Interchange fees on sales have to pay to card holders

Problem of Losing private credit information such as marketing information, customer loyalty, interest income and so on

Issuing Bank

Extending credit to the card holders

Collection of payments from card holders

Distribution of cards

Authorization of transactions

Receivables collection

It is easy to collect fees from the card holders

Interest rate spreads can be collect easily

Gaining the ability to cross sell to their consumers

Ability of being able to share interchange fees

There are some fraud risk concerning credit card

Managing costs of credit card

Card Association

Establishment of rules standards and standard protocols for governing participation in their network

Promotion of the brand of Bank

Formation of interchange fee structure

Collection of assessment fees

Collection of transaction fees

Costs of expanding market

Costs of maintaining network

Cost of taking different fraud reducing programs

TECHNOLOGICAL USE IN BANKING SECTOR

Improvements in the technological field have played significant role in the growth of financial services industry as well as in the growth of limited-purpose banks. There are some people who think that specialization in financial institution comes from improvements in technology.

Banking sector is going to get fully technology based. Most valuable reasons are the huge task conducted by business firms. Banks are giving consumer service and getting more consumers oriented such as ATM service, Internet Banking, SME Loan, Priority Banking and so on. Banks are now competitive because of combination of banks and commerce. So they have to provide quick service such as check funding, quick withdrawal, fund transfer, LC opening etc.For various purposes data-mining techniques are used in the financial industry. Credit scoring is the most mentionable example of the use. To produce a score to summarize a credit risk banks use statistical techniques and historical data as a credit scoring process. Credit scoring is a common form of speeding up credit decision to attract customers, and institutions use another efficient technique to identify their potential customers that is data-mining.

In today’s financial services industry electronic payment systems are important innovations having methods of transferring funds electronically. Because of having less physical branches these banks rely on Automated Teller Machines to give opportunity to their customers to access their cash. It also provides advantage of accessing on the automated clearing house to transfer fund. Credit card banks can process the payments within short time and having no physical existence of branches because of the development of technology. This dramatically reduces the cost of credit card banks. This development benefitted the credit card card banks as well as customers.

Credit card banks take the traditional notion of banking as challenge and they provide unique product mixes to draw considerable attention of the new customers. They also have unique business model to get competitive advantage [Basel, June, 1996].

BANKING TECHNOLOGY

Banking Kiosk

A unique feature of the Versa Banker is its cheque deposit capability. It issues a receipt to deposit a cheque with a scanned image of the cheque. If a cheque is endorsed at the back detail transaction report is generated for the department of MIS of the bank.

Personal Enquiries:

The Versa banker allows you to check your account balance, print a mini statement and make cheque book requests.

Internet Banking:

Connect to the internet and carry out transactions through e-banking, with the help of Versa Banker. It is asked by the bank to view details of one’s account and after that to make transactions online.

ATM

TMs were originally developed as just cash dispensers; they have evolved to include many other bank-related functions.

ATMs include many functions which are not directly related to the management of one’s own bank account, such as:

Updating passbooks

Paying routine bills, fees, and taxes (utilities, phone bills, social security, legal fees, taxes, etc.)

Deposit currency recognition, acceptance, and recycling.

Loading monetary value into stored value cards

Printing bank statements

Purchasing

Concert tickets

Postage stamps

Shopping mall gift certificates

Lottery tickets

Train tickets

Movie tickets

Donating to charities

Adding pre-paid cell phone credit.

Cheque Processing Module

Games and promotional features

ELECTRONIC FUNDS TRANSFER

Electronic funds transfer or EFT refers to the computer-based systems used to perform financial transactions electronically.

There is a number of different concepts that use this term:

A cardholder makes use of payment card

Direct deposit payroll payments for a business to its employees, possibly via a payroll services company

Direct debit payments from customer to business, where the transaction is initiated by the business with customer permission

Electronic bill payment in online banking, which may be delivered by EFT or paper check

Wire transfer via an international banking network (generally carries a higher fee)

Electronic Benefit Transfer

MICR Check

The MICR stands for Magnetic Ink Character Recognition.

This technology is unique and uses magnetically chargeable ink and/or toner to print the special characters or numbers on the bottom of the checks.

E-13B:     

CMC-7:    

United States of America

France

Canada

Spain

Australia

United Kingdom

Other Mediterranean Countries

Japan

South America (except Colombia)

India

After printing, the documents are then processed mechanically and electronically through a reader-sorter machine.

BANKS in BANGLADESH USING INFORMATION TECHNOLOGY

The two main technology based bank in Bangladesh are-

Dutch Bangla Bank Ltd (DBBL)

Eastern Bank Ltd (EBL)

TECHNOLOGY USED BY DBBL

Dutch-Bangla Bank offers a complete electronic banking facility for your company around the clock. Most multi-nationals use this service because it is advanced, secure and affordable. DBBL creates a custom banking service to suit any business of any size. The services have a wide range that includes cash flow services, distribution banking and salary accounts. If a company knows what type of custom and tailored banking service they need, DBBL can provide it instantly and at minimal cost (usually free of charge).

For example for your starting point, DBBL has created Employee Banking program which allows:

Providing employees with timely salary payments

Transactions are properly logged for your easy reference

Seamless and error free distribution of salaries

Highly secure way of distributing money

Lower manpower needed

Reduces cash theft and misappropriation

No cash at hand in the office, all cash finally distributed through the largest ATM network in Bangladesh

DEBIT / CREDIT CARDS

Dutch-Bangla Bank family, always believe that, as in everything else, you deserve the best in banking too. We are here to assist you 365 days round the clock through our Customer Care Center.Normal cards use a magnetic strip at the back of the card. The information and security on that magnetic strip is stationary and does not change. Hence it can be easily duplicated. But NexusEMV’s processor uses its processor to fully digitally lock all the information. It prevents the information from being copied as the processor ‘generates’ security codes rather than store it. It is a form of encryption.

INTERNET BANKING

DBBL allows you to do seamless internet banking. This allows you to review your account, statements, paying bills as well as making some transactions. Because of local banking regulations, DBBL is not allowed to provide some types of transactions even though it is fully capable. Additional Internet Banking Features for Corporate Banking:

Letter of Credit

Bank Guarantee

Limits Query

SMS/MOBILE BANKING

DBBL pioneered Mobile Banking in Bangladesh. It was the first bank to offer banking facilties through a wide range of mobile phones. SMS (Short Messaging System) is an extremely unsecure method to do mobile banking.

The mobile phone networks are unsecure and there is nothing DBBL can do but to take precautionary steps. To make the most of this unsecure scenario, DBBL issues you a mobile PIN number which is different from the DBBL pin number for your mobile transactions. Not under any circumstances is the DBBL PIN number to be used in mobile banking. A different PIN number and a mobile transaction limit imposed by DBBL provide some security (but not all) over the unsecure phone network. Clients should be aware and cautious that although DBBL does its best, it cannot guarantee full security over a phone network it has no control over.

EBL INTERNET BANKING

EBL Internet banking application more efficient than others bank and EBL addresses the needs of individual as well as corporate account holders of EBL.

List of Transactions:

Transfers and Payments modes of EBL:

There are different modes of transferring funds and customer can choose the modes he likes to transfer funds from selecting different modes. The user also has the right to choose the source and destination accounts because it depends upon his rights.

Utility Bill Payment System of EBL:

The customer can transfer funds from his accounts for making Utility Bill Payments to utility companies. The mode payment is as set up by the Bank.

Deposits:

Maintaining Deposits

The user can view all the deposits maintained by the corporate.

The customers are able to encash a deposit before its maturity.

Session Summary of EBL banking:

The customer now able to view the transactions profiles performed in a session.

SECURITY MECHANISMS

Encryption

Encryption is the usual way to meet the data confidentiality requirements and although using a symmetric algorithm (symmetric or asymmetric) could be used, there are good reasons for using symmetric [Financial times, November 8, 1996].

Message Authentication

A Message Authentication Code (MAC) is a cryptographic checksum, calculated using a symmetric algorithm, which is appended to a message and which can be verified by the recipient of the message. The use of MAC is one method of providing the integrity and authentication services, but it is not appropriate for meeting the requirements for no repudiation.

Digital Signature

A digital signature is a checksum, calculated using the private key of an asymmetric key pair, which is appended to a message and which can be verified by anyone with access to the corresponding public key. The digital signature is dependent on the complete message, so any change to the message will be detected. The real difference between MAC and digital signature is that as well as providing integrity and authentication, the later also provide non-repudiation.

Algorithms and Cryptographic Mechanisms

The constraint linked with each cryptographic algorithm (computation resources, time to compute, key management, algorithm capability and design…) limits their use for only a given number of security services. The following table lists the main security services and states whether RSA or DES (Data Encryption Standard) can address them [Denny, 1998]

CONCLUSION

The present status of e-banking is not satisfactory in case of virtual banking, call center and SMS banking. But all banks under study have their connectivity with SWIFT channel. Major reason is that security concern. One study in Europe reported that there is 2.6% increase in establishment of Bank branches. That means that E-Banking is declining in Europe. The main concern is security. So, data confidentiality, integrity, proof of origin, peer entity authentication, non-repudiation must be ensured. A few problems have been experienced by the IT heads in the Banks such as withdrawal of money beyond the limit. This has taken place at ATM booths because there is agreement between Banks regarding networking. [Barbara, 1997]