BANKING TECHNOLOGY

Prior to 1983, most of the banks, being practically unable to computerise , had taken a
passive view resulting in automation taking a very low priority.

Only after 1983 and the first report of ‘ Rangarajan Committee ’ under the chairmanship of
then deputy governor of RBI, Dr.C.Ranarajan , brisk activity were there in order to bring
quick technological changes in the field of computerisation and communications.

Four major objectives of computerisation in banking are to improve – customer service ,

housekeeping , decision making and productivity and profitability.

Standalone Computer System is normally the initial stage of computerisation , where the
computer system is used by only one person at a time

Advantages-low equipment cost, no complicated software, easy to impart training, better

security.

Disadvantages- slow processing, low data capacity, to be used by one person at a time with
low work load.

Multi User system-several people can access at the same time based on centralised
processing concept
Most of the banking system are developed under the centralised computing concept which is
due to operating system ( like Unix)which enables such processing system. Relational Data
base Management System ( RDBMA) and other Data Base Management System
(DBMS) use the Unix platform.

Branches can provide service through ATMs , Internet ,Mobile collectively called as delivery
channels.

Most of the security features are in-built in the operating system and hardware themselves
such as use of password , various access right to system and data locking facility.

The provision of features like disk mirroring , disk duplexing , transaction tracking
system, regular backups and ups prevent system failure and help in recovery.

The generation of audit trials and exceptional transaction reports ensure proper
functioning of the computerised system.

Computerization at Regional/Zonal/Circle Level - Branch profiles, Credit Monitoring,

Personnel data Management

Computerisation at Head Office Level - HRD and Administrative control, funds

management, investment portfolio management, branch porofiles and Credit information
system.

LANS AND WANS

LOCAL AREA NETWORK(LAN)

A computer network is an interconnected system of autonomous computers , each system

being capable of independent operation as well as being able to communicate with other
systems.

The computer network that links computers and network devices and peripherals within a
localised area say within a building is known as LAN.

Generally LAN will not extend beyond 150 meters.

Each independent system is known as node , the number of nodes supported vary from
medium to medium used to establish network.

There is one central node(Server) providing and controlling all the system of the network.

TOPOLOGY(Layout)-

The way in which the network devices are interconnected in a LAN is known as topology.

LAN design used in information transmission are centralised control and distributed
control

Centralised control network – star and tree topologies

Distributed control network – ring and bus

The method of operation for the transfer of data over networks are called packets switching
where the message is broken down into small units called packets .Each packet consists of
data bits and header containing its source and destination address.

PROTOCOLS-are the set of rules for communication between similar modules of processes
,usually in different nodes .

It controls priority and sequence of transmission , errors in transmission , and the process of
beginning and concluding conversations.

NETWORK PROTOCOLS depend on adapters – Ethernet and Token ring

NETWORK DEVICES used in LAN – NIC(Network Interface Card), Hubs, Switches,

Bridges, Routers, Gateways, Firewalls, WAPs and Modems

Multiplexer is used to receive signals from several communication lines and pass on to one
communication line and vice versa.

WIDE AREA NETWORK

Wide area Network (WAN) are defined as a large scale computer network spread over a
span of sizeable geographic area normally utilizing the telecommunication network.

As compared to LAN the transmission speed and capacity are limited and the data transfer
rates are very low in case of WAN .

When separate data lines are used between two or more computers such a network is called
leased line network.
Computers can alone be linked by using ordinary telephone lines which is called dialup network.

Connectivity can also be established by using satellite link or microwave link or there can be a
combination of both in a single network.

Logically, any two computers connected through a telephone line need a modem at each end.

Uninterrupted power system provides clean and reliable AC power to the computer system protecting
them from power blackouts. THere are two types of UPS – Online and Offline UPS.

CORE BANKING

Core Banking has a centralised branch computerisation model where the branches are connected to a
central host which incorporates branch automation modules and multiple delivery channels like ATM,
ABB, Debit Card ,Tele-Banking /Mobile banking, Internet banking etc under one roof.

Essential Requirements- Creation of Primary Data Centre, Disasater recovery site, Business
Process Re-engineering, Specialised Consultancy, Infrastructure.

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ELECTRONIC PAYMENT SYSTEM

AUTOMATED TELLER MACHINE- The committee headed by Dr.C.Rangarajan

recommended the setting up of ATMs in India.

Stand-alone ATMs made their appearance in India in early 1990s.

ATM Models in India- ONline, Off-line, Stand-alone, Networked.

Cash Dispenser(CD)- Cash Dispenser is a pruned down version of ATM .CD is an ATM
without a depository and is intended to serve the customers for cash withdrawls only.

NETWORKING OF ATMS -

For Optimising the cost on investment in ATMS , banks joined together in small clusters to
share their inter- operability.

Amongst these clusters at the national level , IDRBT initiated the process of setting up of
“National Financial Switch”(NFS)to facilitate apex level connectivity of other switches
established by banks .

NPCI(National Payment Corporation of India) took over NFS operations from Dec 14 ,
2009.
IBA was the first organisation to set up shared payment network system( SPNS) or
SWADHAN network of ATMS of its member banks in Mumbai.THe network went live on 1
feb, 1997.

HWAK( The Intelligent Auto Teller and Netware Management System) are special breed
of ATM capable of thinking .HWAK provides unsurpassed service even in absence of a
reliable communication network.

WHITE LABEL ATMs are owned and operated by non-banking companies and do not
display any bank branding/signage. And serve all bank customers and will be interconnected
with the entire ATM network in the country.In June 2012, RBI issued guidelines for
introduction of WLA

NATIONAL PAYMENT CORPORATION OF INDIA

RBI after setting up the Board for Payment and Settlement system in 2005 released a
vision to set up a umbrella institution for the Retail Payment System in the country.This led
to formation of NCPI promoted by RBI and nine other public and private sector banks.

RUPAY- A new card payment scheme launched by NPCI to fulfill RBI 's vision to offer a
domestic , open loop , multi lateral system which will allow all Indian Banks and financial
institution to participate in electronic payment.

Rupay coinage of two terms Rupee and Payment has a sense of nationality in it.

The Rupay Debit Card can be used in online transactions and payments through
“RuPayPaySecure” an e-commerce solution of NPCI.

PIN- is a randomly generated sequence of digits which is printed on a paper and is

automatically folded and sealed before it reaches card holder.

ELECTROMAGNETIC CARDS- Different types of plastic cards are Charge card , Debit
card, Credit card, Smart Card or Chip Card, Restricted card /Member card

Smart card looks like any other plastic card or an ATM Card with an integrated circuit (IC)
installed.

The IC chip contains memory , may contain a processor and communicates with the external
world through contacts on the surface of the card.

The size position and utility of the contact are specified by ISO 7816 , so that card can
interact with variety of equipments.

ISO 10202 defines the security features.

There are two types of smart cards- memory chip and micro processor card.

EMV CARDS- stand for Europay ,MasterCard and Visa , a global standard for inter-
operation of intergated circuit card and IC Card Enabled POS terminals and ATMs under the
name “ IC Credit” and “Chip and PIN”

THe EMV Standards define the interaction at the physical , electrical , data and application
level between IC Card and IC processing devices for financial transactions.

There are standards based on ISO/IEC 7816 for contact cards

Standard based on ISO/IEC 14443 for contactless cards (PayPass, PayWave, ExpressPay)

MULTIPLE PIN – There may be unique PIN for each pocket, meaning that the smart card
may have multiple pin .

Other Security features are –

Dynamic Signature Verification,

Fingerprint Verification,

Voice recognition system,

Hand Geometry,

Retinal pattern verification,

Vein recognition,

Visual recognition.

INTERNETBANKING – Basic Level Service, Simple transactional Website, Fully

TRansactional Website

,MOBILE BANKING- comes with the features like 128 bits encryption and open internet
technology, it is not dependent on any specific service provider and the hand set company

CHEQUE TRUNCATION -Section-6 of the NI Act , defined cheque as “ a bill of exchange

drawn on a specific banker and not expressed to be payable otherwise than on demand “

The section has been amended on September 2002 to include cheque truncation and
electronic cheque within the definition of cheque.
The amended Section 6 reads as “ A cheque is a bill of exchange drawn on a specific banker
and not expressed to be payable otherwise than on demand and it includes the electronic
image of a cheque truncation and a cheque in electronic form”

MICROFICHE- For enormous ticklish data storage, microfilm or microfichecome is handy

to retain voluminous information.

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DATA COMMUNICATION NETWORK If digital signals are to be transmitted over long

distances then the signal detoriates. To overcome this problem the digital signals are
converted into danalog signals for transmission over telephone lines this conversion between
the digital and analog form is carried out by an interface device called modem.

TRANSMISSION MEDIUM

Terrestial medium- Twisted pair, Coaxial cable , optical fibre

Microwave system

Communication satellite

TRANSMISSION PROCESSOR

Message Switches- I t is used for storing and forwarding data to a large number of terminals
over a single communication channel

Multiplexer-It is a device that enables more than one signal simultaneously over one
physical channel.

Front end processor- it is a dedicated communications system that intercepts and handles
communication activities for the host computer .

MODES OF TRANSMISSION

Simplex- a simplex transmission is capable of transmitting data in only one direction . The
sender cannot recieve and the reciever cannot send

Half-duplex- a half-duplex transmission allows data movement in both the directions but in
only one direction at a time

Full-duplex- a full-duplex commonly called 'duplex' provides for simultaneous two-way

transmission
NETWORK SCENARIO IN INDIA : MAJOR NETWORKS

The committees on communication networks for banks, set up in 1987 under the
chairmanship of Shri T.N ANANTHARAM IYER , executive director , Reserve bank of
India , had strongly recommended for the establishment of a cooperative communication
network especially for the banking industry

Based on recommendation of this committee, a communication network , 'BANKNET' was

set up in the year 1991 by the RBI to facilitate inter-bank transfer of messages within india

Banknet and SWIFT are the two networks designed exclusively for the banks and other
financial institution for their communication needs.

INET developed by dept of telephone , technology with error correction of detection

techniques.

NICNET has been set up by the national informatics centre ( NIC) , a goverment of India
organisation .

It is India 's largest wide area network(WAN) .

INDONET set up by CMC , provides gateway to INET for a wider geographical spread in
India and connectivity to other international network.

RBINet is a communication software , which allows for free format messaging and file
transfer on the existing banknet infrastructure . RBINet was established as per the
recommendation of Saraf Committee.

EMERGING TRENDS IN COMMUNICATION NETWOR K FOR BANKING

RBI VSAT Network christened as INFINET is a countrywide date communication network

for banks linking major centres of the country including those where conventional telecom
infrastructure is either poor or non existant.

SWIFT- Society for Worldwide Interbank Financial Telecommunication was founded by 239
banks spread over fifteen countries in 1973 with an objective to create unified international
transaction processing and transmission system for banking industry.
Security features in SWIFT

Key authentication mechanism

Encryption

Checksum

AUTOMATED CLEARING SYSTEMS

Clearing House Inter-bank Payment System( CHIPS) USA

Clearing House Automated Payment System( CHAPS) UK

Clearing House Automated Transfer System( CHATS) HONG KONG

TWO LEVEL FUND TRANSFER SYSTEM( Fund Trf and Settlement System )

Fedwire

Bankwire

Point of Sale (POS) System.

DEVELOPMENT IN INDIA

Electronic Clearing System (ECS)

National Electronic Fund Transfer(NEFT)

Real Time Gross Settlement (RTGS)

Immediate Payment System( IMPS)

Digital Signatures

DATA WAREHOUSING- The Vasudevan Committee has recommended that the RBI
should established a data warehouse on banking and finance for data collected under the
regulatory provision.

DATA MINING- is a technique to reveal the strategic information hidden the data
warehouse .

It is a process of finding patterns and relations in large data bases .

ROLE AND USES OF TECHNOLOGY UPGRADATION

Data and Message Transferring - is one of the fundamental activity in any business system.

Corporate Websites – Internet has opened new avenues for the bank to market their product
and services .

Management Information System- places particular emphasis on the availability of data

and the ease , with which it can be analysed and turned into meaningful information for
managerial decision making.

Decision Support System- allows for the creation of simulations under various conditions
and help the management analyse situations under different conditions.

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SECURITY CONSIDERATIONS

The major components in computerised environment which require special attention

Data and Software

Infrastructure

Peopleware

DIFFERENT TYPES OF THREATS

Accidental Damages- Environmental Hazards, Human Error and Omission Unreliable

System

Malicious Damages- Interruption in Service, Frauds

CONTROL MECHANISM
Physical Control- Control over access to asset , Control over outputs, routine checks,
Logical Control

Internal Control - Dual Control and authorization , Validation of each transaction against
limits and validation of sensitive parameters.

Operational Control -Audit trials and Data Encryption

THREATS TO IS SECURITY

Phishing attack is a form of social engineering attack used by cyber criminals to steal
sensitive information by using spam mails to deceive consumers to disclose their credit card
numbers, bank account information etc.

Vishing – scammer calls and asks for personal details for updation of data base and asks
sensitive information.

Smishing uses cell phone text message to lure customers

LEGAL FRAME WORK FOR ELECTRONIC TRANSACTION

The United Nations Commission on International Trade Law adopted in 1996 “The Model
Law on Electronic Commerce”to which India is a signatory .

IT Act, 2000 provides legal recognition for transactions carried out by electronic commerce.