IBS UNIT 5

Electronic fund transfer is an organised digital platform that

facilitates transfer of funds electronically. The electronic fund
transfers are made through MICR, RTGS, NEFT, DEMAT, SWIFT. Such
types of EFTS are discussed below-

MICR
MICR is a technology used to verify the legitimacy and originality of
the documents specially checks. Magnetic Ink Character Recognition
(MICR) is a technology primarily used in the banking industry to
automate the processing of checks and other documents. It involves
printing specific characters with magnetic ink, which can be easily
read by machines equipped with magnetic sensors. The MICR code,
typically found at the bottom of a check, consists of three parts: the
bank's routing number, the customer's account number, and the
check number. This technology significantly speeds up the clearing
process of checks, reduces human error, and enhances the overall
efficiency of banking operations.

RTGS
RTGS stands for Real-Time Gross Settlement. It is a funds transfer
system that facilitates the immediate transfer of money between
banks. The key features of RTGS are:
> Real-time: Transactions are processed as soon as they are received,
without any delay.
> Gross settlement: Each transaction is settled individually, rather
than being netted with other transactions.
> Irrevocable: Once a transaction is processed, it is final and cannot
be reversed.
RTGS is typically used for high-value transactions, as it offers a secure
and efficient way to transfer large sums of money. It is widely used by
banks, financial institutions, and [Link] minimum amount
to be remitted through RTGS is 2,00,000/- with no upper or
maximum ceiling.

With effect from July 01, 2019, the Reserve Bank has waived the
processing charges levied by it for RTGS transactions. Banks may pass
on the benefit to its customers.

With a view to rationalise the service charges levied by banks for

offering funds transfer through RTGS system, a broad framework of
charges has been mandated as under:

a) Inward transactions - Free, no charge to be levied.

b) Outward transactions - 2,00,000/- to 5,00,000/-: not

exceeding₹24.50/-; (exclusive of tax, if any)

Above ₹ 5,00,000/-: not exceeding₹ 49.50/-. (exclusive of tax, if any)

Banks may decide to charge a lower rate but cannot charge more
than the rates prescribed by RBI.
The remitting customer has to furnish the following information to a
bank for initiating the RTGS transfer
1. Amount to be remitted
2. The account number to be debited
3. Name of the beneficiary bank and branch
4. The IFSC number of the receiving branch
5. Name of the beneficiary customer
[Link] number of the beneficiary customer.
7. Sender to receiver information, if any

Benefits of RTGS:
Speed and Efficiency: RTGS enables immediate transfer of funds,
making it ideal for urgent transactions. This speed enhances overall
economic efficiency.

Reduced Risk of Fraud: Once a transaction is processed through

RTGS, it is final and cannot be changed. This significantly lowers the
chances of fraudulent activities.

Reduced Settlement Risk: Real-time settlement minimizes the risk of

payment defaults compared to delayed settlement systems.

Improved Liquidity Management: Faster transactions allow for better

management of cash flows and working capital.
Enhanced Security: RTGS operates under stringent security
measures, ensuring the safety of funds.

Suitable for High-Value Transactions: The system is designed to

handle large-value transfers with confidence.

Reduced Cybersecurity Concerns: RTGS transactions are processed

quickly, minimizing exposure to potential cyber threats.

Regulated Transaction Charges: The RBI sets limits on transaction

charges, ensuring transparency and fairness.

Lower Settlement Times: Real-time processing leads to significantly

reduced settlement times.

Transparency: The entire process is transparent, allowing for easy

tracking of transactions.

Operational Six Days a Week: RTGS is available for most of the

working days, providing flexibility to users.

NEFT :
Process of NEFT

1. Initiate the Transfer

Log in to your bank’s net banking platform or mobile app. Select
the NEFT option under fund transfers.

2. Add Beneficiary
Add the recipient (beneficiary) details, including their name, account
number, IFSC code of their bank branch, and sometimes their contact
information.

3. Verify Beneficiary
Some banks may require you to wait for beneficiary approval. Once
approved, you can proceed with the transfer.

4. Enter Transaction Details

Specify the amount you wish to transfer and select NEFT as the
payment method.

5. Authenticate the Transaction

Confirm the transfer by entering a transaction password or a One-
Time Password (OTP) sent to your registered mobile number.

6. Processing by the Bank

The bank forwards the transaction to the Reserve Bank of India (RBI),
which processes NEFT transactions in half-hourly batches.

7. Credit to Beneficiary Account

The beneficiary's bank receives the funds and credits them to the
recipient’s account.

8. Confirmation
Both the sender and the beneficiary receive notifications (via SMS or
email) once the transfer is successful.

BENEFITS

1. Convenience

NEFT makes transferring money easy and hassle-free. You can

transfer funds from one bank account to another across India without
visiting the bank, as it is accessible online through net banking or
mobile apps.

2. Widespread Accessibility

Almost all banks in India support NEFT, making it widely accessible.

You can transfer funds even if the sender and receiver accounts are in
different banks or cities.

3. Cost-Effective

NEFT is a budget-friendly option for transferring money. It has lower

service charges compared to methods like demand drafts or cash
deposits.

4. Secure and Reliable

NEFT transactions are processed through the Reserve Bank of India's

secure system, ensuring safety and reliability for all users.

5. No Minimum or Maximum Limit

NEFT is flexible as it allows you to transfer any amount. There is no

minimum or maximum transaction limit, although banks might set
their own limits for high-value transfers.
6. Availability

NEFT is available 24x7, including weekends and public holidays. You

can transfer money anytime, without worrying about banking hours.

7. Real-Time Processing

NEFT transactions are settled in batches every half hour, ensuring

that funds reach the recipient quickly and efficiently.

8. Environmentally Friendly

Since NEFT is completely digital, it reduces the need for paper-based

transactions, making it an eco-friendly way to transfer money.

9. Tracking and Confirmation

You get instant notifications via SMS or email once the transaction is
completed, making it easy to track and confirm your transfers.

10. No Need for Physical Presence

NEFT eliminates the need to visit a bank branch, saving time and
effort while making transactions convenient from anywhere.
DEMAT ACCOUNT
Demat Account is an account that is used to hold shares and
securities in electronic format. The full form of Demat account is a
dematerialised account. The purpose of opening a Demat account is
to hold shares that have been bought or dematerialised (converted
from physical to electronic shares), thus making share trading easy
for the users during online trading. A Demat Account or
Dematerialised Account provides the facility of holding shares and
securities in an electronic format. During online trading, shares are
bought and held in a Demat Account, thus, facilitating easy trade for
the users. A Demat Account holds all the investments an individual
makes in shares, government securities, exchange- traded funds,
bonds and mutual funds in one place.

Dematerialisation is the process of converting the physical share

certificates into electronic form, which is a lot easier to maintain and
is accessible from anywhere throughout the world. An investor who
wants to trade online needs to open a Demat with a Depository
Participant (DP). The purpose of dematerialisation is to eliminate the
need for the investor to hold physical share certificates and
facilitating a seamless tracking and monitoring of holdings.

Features of Demat Account

1. Easy share transfers

Using a delivery instruction slip (also known as DIS) investors can
transfer their securities. These slips make buying or selling shares
more efficient and easier. These slips enable the investors to provide
all the details that are required for the smooth execution of any
transaction.

2. Hassel Free dematerialisation & rematerialisation

Demat account allows easy dematerialization and rematerialisation of

all the physical certificates into electronic form and vice versa. To do
these holders have to provide instructions to the depository
participant or DP. Similarly, all- digital securities can be converted
into physical certificates as well.

3. Loans against securities There are many financial institutions that

offer loans against securities that the borrower has in his demat
account. You can use your securities as collateral while availing of
loans by these financial institutions.

4. Freezing Demat accounts

Demat account holder can also freeze their demat account as per
their convenience for a certain period. This is usually practiced when
unexpected debit or credit into the account is to be prevented. By
doing this the holder halt any money transferring into the demat
account.

5. Multiple accessing options For easy accessibility, you can access

demat account via various modes. You can access your demat
account via a computer, a smartphone, or any other type of smart
device. All you need is a good internet connection for a better user
experience.

6. SPEED E-Facility When you trade using your demat account it

offers faster transactions unlike your traditional method of trading.
The National Securities Depository Limited (NSDL) allows users to
send instruction slips electronically rather than transferring physical
slips to the DP. This requires lesser time and is more convenient and
efficient.

7. Corporate benefits
If the companies offer dividends, refunds, or interest to their
investors, these benefits are automatically available to the Demat
account holders. In addition, corporate actions like bonus issues,
right shares, or stock split are automatically issued via Demat account
of all the shareholders.

Benefits of Demat Account

-. Easy to Hold

When it comes to maintaining physical certificates it is a very tedious

job. Keeping track of their performance adds to the responsibility.
Demat account holders make it more convenient to hold and track all
their money and investments through a single account.

2. Immediate Updates

The client can find all the updates related to their account or stock
prices in one place. Easy to access you can review stock performance
from anywhere.

3. Lower Costs
When the traditional method was popular it involved physical
certificates. These certificates required several additional expenses
like stamp duty, handling charges, and other such expenses. Now
that demat account eliminated holding of these physical certificates
these extra expenses are eliminated as well.

4. Reduction in Delivery Risks

When everything becomes digitalized the risks of losing physical

papers are eliminated. Hence it is better to hold your shares in a
demat account than in the form of physical paper. It also eliminates
the risk of forging documents when you maintain everything online.
Demat account guarantees 100% safety and security of all the shares
held in your demat account.

NEW TECHNOLOGIES IN BANKING

E SERVICES

Digital banking is also termed as E- banking or Electronic Banking. It

refers to all the forms of banking services and transactions performed
through electronic means. It allows individuals, institutions and
businesses to access their accounts, transact business, or obtain
information on various financial products and services via a public or
private network, including the internet.

Types of Digital Banking Services

1. Internet Banking:
○ Allows customers to access their bank accounts and perform
transactions online.
○ Offers features like fund transfers, bill payments, balance inquiries,
and more.
2. Mobile Banking:
○ Enables banking services through mobile devices (smartphones or
tablets).
○ Provides features similar to internet banking, often with additional
features like
location-based services.
3. ATM:
○ Automated Teller Machines allow customers to withdraw cash,
deposit checks, and
transfer funds.
○ ATMs are typically located in banks, retail stores, and other
convenient locations.
4. Debit Card:
○ Plastic cards linked to a bank account, used for making purchases
and withdrawing
cash.
○ Offers convenience and security for everyday transactions.
5. Point of Sale (POS) Transfer Terminals:
○ Terminals used at retail stores to process card payments.
○ Enable customers to pay for goods and services directly from their
bank accounts.
6. Pay by Phone Systems:
○ Services that allow customers to make payments over the phone
using their bank
account information.
○ Often used for recurring payments like utility bills or subscriptions.
7. Deposit and Withdrawal:
○ Digital banking services that allow customers to deposit and
withdraw funds
electronically.
○ This can be done through online banking, mobile banking, or at
ATMs.

DEBIT CARD
Debit card

A debit card is a payment card that makes payments by deducting

money directly from a consumer's checking account, rather than on
loan from a bank. Debit cards offer the convenience of credit cards
and many of the same consumer protections when issued by major
payment processors such as Visa or Mastercard.

There are two types of debit cards that do not require the customer
to have a checking or savings account, as well as one standard type.

• Standard debit cards draw on your bank account.

• Electronic benefits transfer (EBT) cards are issued by state and
federal agencies to allow qualifying users to use their benefits to
make purchases.
• Prepaid debit cards give people without access to a bank account a
way to make electronic purchases up to the amount that was
preloaded onto the card.

Features of Debit Card

1. Instant Access to Funds: Allows direct access to your bank account
for payments and withdrawals.

2. Wide Acceptance: Can be used at ATMs, online shopping

platforms, and Point of Sale (POS) terminals.

3. PIN-Based Security: Transactions require a secure PIN, ensuring

safety.

4. Contactless Payment: Many debit cards offer tap-and-pay options

for small transactions.

5. Limit Control: Spending is limited to the amount in your account,

preventing overspending.

6. Cash Withdrawal: Allows you to withdraw cash from ATMs

anywhere.

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Merits of Debit Card

1. Convenience: Easy and quick payments without carrying cash.

2. Budget-Friendly: Helps control spending as transactions are limited

to available funds.

3. Wide Accessibility: Accepted globally for online and offline

payments.

4. Secure: Requires PIN for transactions, and lost cards can be quickly
blocked.

5. No Debt Accumulation: Unlike credit cards, there’s no risk of

accumulating interest or debt.

6. Rewards and Discounts: Some cards offer cashback, discounts, or

rewards on purchases.
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Demerits of Debit Card

1. No Credit Facility: Does not allow you to spend beyond your

account balance.

2. Risk of Fraud: If details are compromised, money can be withdrawn

directly from your account.

3. Limited Rewards: Offers fewer rewards compared to credit cards.

4. No Credit Score Building: Using a debit card doesn’t contribute to

improving your credit score.

5. ATM Fees: Using ATMs outside your bank network may incur
additional charges.

6. Dependency on Account Balance: Transactions may fail if sufficient

funds are not available.
What is a Credit Card?

A credit card is a financial tool issued by banks or financial

institutions that allows you to borrow money up to a pre-approved
limit to make purchases or withdraw cash. The borrowed amount
must be repaid within a specific period, usually with interest if not
paid in full by the due date.

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Features of a Credit Card

1. Pre-Approved Credit Limit

The card comes with a pre-set limit, determined by the bank based
on your income, credit score, and repayment capacity.

2. Interest-Free Period

Offers a grace period (usually 20–50 days) to repay the borrowed

amount without incurring interest.
3. Wide Acceptance

Accepted globally for online and offline payments, including travel

and shopping.

4. Rewards and Benefits

Many cards provide cashback, reward points, travel miles, or

discounts on purchases.

5. EMI Facility

High-value transactions can be converted into Equated Monthly

Installments (EMIs) for easier repayment.

6. Builds Credit Score

Regular and timely repayments help build a good credit history and
improve your credit score.

7. Contactless Payments

Enables tap-and-pay for small transactions without entering a PIN.

8. Cash Withdrawal

Allows cash withdrawal from ATMs, though it incurs higher interest

and fees.

9. Enhanced Security

Comes with PIN protection, CVV, and sometimes biometric or two-

factor authentication for online transactions.
10. Supplementary Cards

Allows additional cards for family members linked to the primary card
account.

Benefits of a Credit Card

1. Convenience

Allows you to make purchases without carrying cash, whether online,

offline, or internationally.

2. Access to Credit

Offers a pre-approved credit limit, letting you borrow money for

immediate needs and repay later.

3. Rewards and Offers

Earn cashback, reward points, or travel miles on purchases, which can

be redeemed for goods, services, or discounts.

4. Emergency Assistance

Useful in emergencies when you need immediate funds but don't

have enough cash.

5. Interest-Free Period

Provides a grace period (typically 20-50 days) to repay the amount

without incurring interest, if paid in full.

6. Builds Credit Score

Helps improve your credit score if bills are paid on time, which can
benefit future loan approvals.
7. EMI Facility

Enables conversion of large purchases into affordable monthly

installments (EMIs), easing the financial burden.

Difference Between Credit Card and Debit Card

Here are 8 key differences between credit cards and debit cards:

1. *Source of Funds*
- Credit Card: Allows you to borrow money from the card issuer to
make purchases, pay bills, or get cash advances.
- Debit Card: Draws directly from your checking account balance to
make purchases, pay bills, or get cash.

2. *Payment Terms*
- Credit Card: Requires you to pay back the borrowed amount, plus
interest and fees, by the due date.
- Debit Card: Deducts the transaction amount from your account
balance immediately.

3. *Interest Charges*
- Credit Card: Charges interest on outstanding balances if you don't
pay the full amount due.
- Debit Card: Does not charge interest, as you're using your own
money.
4. *Fees*
- Credit Card: May charge annual fees, late fees, foreign transaction
fees, and other charges.
- Debit Card: Typically has fewer fees, but may charge for ATM
withdrawals, overdrafts, or other services.

5. *Credit Limit*
- Credit Card: Has a credit limit, which is the maximum amount you
can charge on the card.
- Debit Card: Does not have a credit limit, as you can only spend
what's available in your account.

6. *Rewards and Benefits*

- Credit Card: Often offers rewards programs, such as cashback,
points, or travel miles, as well as benefits like purchase protection
and travel insurance.
- Debit Card: May offer some rewards or benefits, but these are
typically less comprehensive than those offered by credit cards.

7. *Fraud Protection*
- Credit Card: Typically offers more robust fraud protection, with
zero-liability policies and the ability to dispute charges.
- Debit Card: Also offers some fraud protection, but you may be more
liable for unauthorized transactions.
8. *Building Credit*
- Credit Card: Can help you build credit by reporting your payment
history to the credit bureaus.
- Debit Card: Does not report to the credit bureaus, so it won't help
you build credit.

ATM

The full form of ATM is Automated teller Machine, it is an electro-

mechanical machine which consists of automated banking platforms
that allow clients to perform smooth transactions without the
assistance of a branch representative or teller. A debit card or credit
cardholders should be able to withdraw cash at most ATMs.

ATMs are beneficial, allowing clients to conduct fast self-service

transactions such as cash withdrawals, deposits, bill payments and
account-to-account transfers. Fees are usually paid out for cash
withdrawals by the bank where the account is held, by the ATM
operator, or both. Some of these charges can be avoided by using an
ATM which is operated directly by the account holding bank.

ATMs are recognized in different parts of the world as ABM

(Automated Bank Machines), or Cash Machines.
Basic Parts of ATM

The ATM is easy to use. It contains input and output tools, allowing
people to deposit or withdraw money comfortably. Underneath are
the essential output and input devices of an ATM.

Merits of ATMs

1. Convenience

ATMs are available 24x7, allowing customers to withdraw cash,

deposit money, or check balances anytime without visiting a bank.

2. Time-Saving

Transactions are quick and save the time required to wait in long
queues at bank branches.

3. Wide Accessibility

ATMs are located across cities, towns, and even rural areas, providing
easy access to banking services.

4. Multi-Functional

Apart from cash withdrawal, ATMs allow fund transfers, mini

statements, and utility bill payments.

5. Reduced Bank Workload

Automates routine transactions, reducing the pressure on bank staff

and branches.

6. Supports Multiple Banks

Many ATMs allow customers to access accounts from different banks

through interbank networks.
7. Emergency Assistance

Provides immediate access to cash during emergencies or while

traveling.

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Demerits of ATMs

1. Security Risks

ATMs are prone to theft, skimming, or hacking, which can

compromise users' accounts.

2. Technical Issues

ATMs may face downtime, network problems, or run out of cash,

causing inconvenience.

3. Transaction Limits
Daily withdrawal limits restrict access to large amounts of money.

4. Hidden Charges

Using ATMs outside your bank's network may incur extra fees.

5. Dependency on Cards

Loss or damage of an ATM card can leave users unable to access

funds temporarily.

6. Lack of Personalized Service

ATMs cannot assist with complex banking queries or services that

require human intervention.
7. Fraud and Scams

Users may fall victim to phishing, fake ATMs, or card trapping

devices.

What is Internet Banking?

Internet banking, also known as online banking, is a service provided

by banks that allows customers to perform various banking
transactions through the internet. It enables users to manage their
bank accounts, pay bills, transfer funds, and access other banking
services from a computer or mobile device without needing to visit a
branch.

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Features of Internet Banking

1. Fund Transfers

Allows users to transfer funds between accounts, to other bank

accounts, and across different banks through NEFT, IMPS, or RTGS.
2. Bill Payments

Facilitates online payment of utility bills such as electricity, water,

telephone, and credit card bills.

3. Account Management

Users can view account statements, check balance, and track recent
transactions in real-time.

4. Online Shopping and Payments

Enables direct payments for online shopping, bookings, and

subscriptions securely.

5. Fixed Deposit and Loan Management

Customers can open and manage fixed deposits, apply for loans, and
track loan repayments.

6. Investments and Mutual Funds

Offers the ability to invest in mutual funds, stocks, and other

investment products directly.

7. Fund Recharging

Allows users to recharge mobile phones, DTH services, and pay for
subscriptions.

8. Security Features

Banks implement security measures like two-factor authentication

(OTP), encryption, and secure login to ensure the safety of
transactions.
9. Account Alerts and Notifications

Users receive instant alerts for any activity in their accounts such as
withdrawals, deposits, or security breaches.

10. Transaction History and Reports

Offers the ability to download transaction history, generate reports,

and print statements for financial tracking.

Merits of Internet Banking

1. Convenience

Available 24/7, allowing customers to perform transactions and

manage their accounts from anywhere, at any time, without visiting
the bank.

2. Time-Saving
Eliminates the need for long queues at branches, making banking
faster and more efficient for customers.

3. Instant Transactions

Enables real-time fund transfers, bill payments, and transaction

tracking without any delays.

4. Easy Access to Account Information

Provides quick access to account statements, balances, and

transaction history for better financial management.

5. Cost-Effective

Many banks offer free online services for routine transactions like
fund transfers and bill payments, saving on fees for branch visits or
physical paperwork.
6. Security Features

Internet banking is protected by encryption, two-factor

authentication (like OTP), and other advanced security measures to
ensure safe transactions.

7. Wide Range of Services

Allows users to apply for loans, open fixed deposits, invest in mutual
funds, and even book tickets, all from one platform.

8. Reduced Paperwork

Most services are digital, reducing the need for physical forms and
documents, making transactions paperless and eco-friendly.

9. Global Accessibility
Can be accessed from anywhere in the world, making it easy to
manage accounts even when traveling abroad.

10. Better Financial Planning

Easy tracking of expenses, budgeting, and financial reports helps

users plan their finances more effectively.