Unit IV Negotiable Instruments ACT

The Negotiable Instruments Act 1881-Features of Negotiable instruments-Important concepts and explanations under the
Negotiable Instruments Act- The Paying Banker- Dishonour of cheques-Negotiation-Endorsement- The Collecting Banker-
Negligence-Bills of exchange and promissory note-Discharge of Negotiable instruments -Hundis.

Unit V Banking Technology

Banking Technology - Concept of Universal Banking-Home banking- ATMs- Internet banking- Mobile banking- Core
banking solutions- Debit, Credit, and Smart cards - Electronic Payment Systems-MICR- Cheque Truncation-ECS- EFT-
NEFT-RTGS

UNIT-IV

The Negotiable Instruments Act 1881

⚫ In India law relating to negotiable instruments is contained in negotiable instruments Act

1881.
⚫ “A negotiable instrument means a promissory note, bill of exchange or cheque payable
either to order or to bearer”.
Features of Negotiable Instruments
1. Negotiability- it means transferability. It can be transferred without any formality.
2. Property- The possessor of negotiable instrument is presumed to be the owner of the property
contained therein.
3. Equivalent to cash- Even though is a document it is as good as cash.
4. Recovery- The transferee of the negotiable instrument can sue in his own name, in case of
dishonor for the recovery of the amount without giving notice to the debtor.
5. Contract- A negotiable instrument is a contract to pay money.
6. Prompt payment-A negotiable instrument enables the holder of the instrument to expect
prompt payment.
7. A negotiable instrument can be transferred any number of times till it is at maturity and the
holder of the instrument need not give any notice of transfer to the debtor
Important concept and explanations under the Negotiable Instruments Act
The Paying Banker
The bank on which a cheque is drawn (the bank whose name is printed on the cheque) and which
pays the amount for which the cheque is written and deducts that sum from the customer's
account.
A Banker who holds the account of the drawer of the cheque and is obliged to make payment, if
the funds of the customer are sufficient to cover the amount of the cheque drawn or if
 overdrawing facility is given to the customer.
Protection Available to Paying Banker
• Banker’s Protection Negotiable Instruments Act 1881
• Certain Sections of the Act
Cheque

⚫ A cheque is a bill of exchange drawn on a specified banker and not expressed to be

payable otherwise than on demand. That is the drawer directs the bank to pay a certain
sum to payee on his demand.
(A bill of exchange is an instrument in writing containing an unconditional order, signed by the
maker, directing the banker to pay a certain sum of money only to or to the order of a certain
person or to the bearer of the instrument)
Definition
“A bill of exchange drawn upon a specified banker and payable on demand”
Rules
1. All Cheques are bill of exchange but all bill of exchanges are not Cheques.
2. Usually banks provide their customers with printed cheque forms which are filled up and
signed by the drawer.
3. The signatures must tally with specimen signature of the drawer kept in the bank.
4. A cheque must be dated.
5. A cheque becomes due for payment on the date specified in it.
6. A cheque drawn on a future date is valid but it is payable on and after the date specified. Such
Cheques are called postdated Cheques.
Essentials of a Cheque

1. It must be unconditional order

2. It must be in writing
3. It must be drawn on a specified banker
4. it must be signed by the drawer
5. The order must be for the payment of a certain sum of money only
6. Drawer, drawee and payee must be certain
7. The payee must be certain
 8. The amount must be payable on demand
Dishonor of Cheques
⚫ A negotiable instrument may be dishonored by non-payment or non-acceptance.
⚫ A cheque and promissory note may be dishonored by non-payment and
⚫ a bill of exchange may be dishonored either by;
1. Non acceptance or by
2. Nonpayment.
1. Dishonor by Non Acceptance
A bill of exchange is said to be dishonored by any one of the following reasons;
a) If the drawee does not accept the bill within 48 hrs from the time of presentment
b) If there are several drawees and all of them do not accept
c) When the presentment of acceptance is excused, and the bill is not accepted. (Say some
excuse for acceptance)
d) When drawee become insolvent or died
e) When the drawee gives a limited acceptance
f) When the drawee is incompetent to contract
g) When the drawee is a fictitious person
2. Dishonour by Non-Payment
A promissory note, bill of exchange, or cheque is said to be dishonoured by nonpayment if the
maker fails to make payment on the date of maturity.
A cheque is dishonored by non payment as soon as a banker refuses to pay.
Notice of dishonour
⚫ When a negotiable instrument is dishonoured the holder must give notice of dishonour to
all the prior parties
Notice by whom?
1. Notice by holder or any other a party
2. Chain method of notice of dishonour
3. Notice by principal or agent
Form of Notice
1. It may be oral or written
2. Clearly indicate the reason for dishonour
 3. It must be given within in a reasonable time
Circumstances when a banker is bound to dishonour of a cheque
1. When the customer countermands payment
2. Garnishee order (issued by high court)
3. Death, Insolvency or insanity of the customer
4. Notice of assignment (letter to transfer)
5. Defective title of the party
6. Loss of cheque
7. Postdated or stale cheque
8. When the cheque is irregular (may change cheque book, any information missing)
9. Closing of account
10. On transfer of accounts
11. When a cheque is Mutilated (Torn)
12. When there is material alteration
13. When the amount in words and figures differs
14. If the cheque is undated
15. the cheque is not presented in banking hours
Negotiation
It is the transfer of an instrument from one person to another in such a manner so as to convey
the title and constitute the transferee the holder thereof. It may be;
a. Negotiable by mere delivery
Payable even to agent to keep it for payee
b. Negotiable by endorsement and delivery
Unless the holder signs his endorsement on the instrument, the transferee does not become a
holder.
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 The literal meaning of the word endorsement is writing on the back of an instrument. Under the
NI Act, it means, writing of the name of the endorsee on the back of the instrument by the
endorser under his signature with the object of transferring the rights therein.
If an instrument is fully covered with endorsements and no space is left, further endorsement can
be made on a slip of paper (called alonge) annexed thereto
Kind of Endorsement

1. Blank or general endorsement

Just put the signature 0of endorser without mention the name of endorsee Eg: sd/-

D.Mohan
2. Special or full endorsement
Including the name of endorsee
Eg:
Pay to Ghosh or order sd/-
D.Mohan
3. Restrictive endorsement
An endorsement, when it prohibits or restricts the further negotiation of the instrument.
Eg: pay to Ghosh only sd/-
D.Mohan
4. Conditional or Qualified
An endorsement is conditional or qualified if it limits or negates the liability of the endorser
Eg: pay to ghosh on Signing a receipt Sd/-
D.mohan
5. Partial endorsement
When an endorser endorses only a part of the amount mentioned in the instrument. it is irregular
The collecting Banker
A Collecting Banker is one who undertakes to collect various types of instruments representing
money in favour of his customer or his own behalf from the drawers of these instruments; some
are negotiable instruments as provided for in the negotiable instruments Act. 1881 and some are
quasi negotiable instruments.
Duties & Responsibilities of Collecting Bankers:
Acting as agent: While collecting an instrument, whether for credit to customer’s account or for
himself, the Bankers works as agent of his customer. As an agent he has generally to take such
steps & precautions to protect the interest or his customer as a man of ordinary prudence would
take to safe-guard his own interest.
Scrutinizing the instruments: Name of the holder, Branch name, date, amount in world and
figure, any cutting without signature, material alteration of any to be checked carefully.

Checking the endorsement: Bankers has to check the instrument whether it has been endorsed
properly.
Presenting the instrument in due time: It is the responsibility of the collecting bank to present the
instrument in due time to the paying bank.
Collecting the proceeds in the payee’s account: It is the duty of collecting banks to collect and
credit the proceed of the instruments to the proper/correct account.
Notice of dishonor and returning the instruments: If any instrument is dishonored by the paying
bank it should be informed to the customer on the business day following the receipt of the
unpaid instruments.
Collecting Banker’s Protection:
Under section 131 of negotiable instrument Act the collecting banker is not liable to the true
owner of a cheque or a banker’s draft if his title to the instrument proves defective provided the
cheque or draft was one crossed generally or specially to himself and collected for a customer is
good faith and without negligence.
The above statutory protection is available to the collecting banker only if he fulfills the
following conditions:
• The cheque he collected is a crossed cheque.
• He collected such crossed cheque only for his customer as an agent & not as a holder for
value.
• He collected such crossed cheque in good faith and without negligence.
Negligence
There are a variety of ways in which a bank can be considered to be negligent in undertaking its
duties towards its customers, many of which are noted in the discussion above by implication. In
broad terms, for the customer to raise the issue, it will be necessary to challenge the efficiency of
the security mechanisms put in place by the bank or offer a credible alternative explanation for
what happened.
Bill of exchange
A bill of exchange is an instrument in writing containing the unconditional order, signed by the
maker, directing a certain person to pay a certain sum of money only to or to the order of a
certain person or to the bearer of the instrument”.

Three parties:
• The maker of bill of exchange is called the drawer.
• The person who is directed to pay is called the drawee.
• The person who will receive the money is called the payee
Specimen of bill of exchange
⚫ Rs 5000 Place.
Date.
On demand pay to Rajesh or order, the sum of Rs 5000/- (Rupees Five thousand only) for value
received.
To Ajith Sd- Stamp
(Address) Babu
⚫ Here Babu is the drawer
⚫ Ajith is the drawee (Acceptor)
⚫ Rajesh is the payee
Essentials of bill of exchange
• The instrument must be in writing.
• The instrument must contain an order to pay.
• There must be three parties.
• The instrument must be signed by the drawer.
• The amount of money to be paid must be certain.
• The payee must be certain.
• It must comply with the formalities as regards date, stamp etc.
Promissory note
“A promissory note is an instrument in writing containing an unconditional undertaking signed
by the maker, to pay a certain sum of money only to or to the order of a certain person or to the
bearer of the instrument”.
Two parties:
⚫ The person who makes the promissory note and promises to pay is called the maker.
⚫ The person to whom the payment is to be made is called the payee.
⚫ Eg I promise to pay A or order Rs 500.

Essentials of a promissory note

1. Pro notes must be in writing
2. A Promise to pay must be express.
3. Definite and unconditional
4. To be signed by the maker
5. Certainty in the case of parties.
6. Certainty in the case of sum of money
7. Promise to pay money only
8. Formalities are not essential. Formalities like time, place registration Number etc is not
required. But it must be stamped as per stamp act.
9. It may be payable on demand or after a definite period of time - Where there is no time is
mentioned the note is payable on demand.
Discharge of negotiable instruments
⚫ An instrument is said to be discharged when all rights of action under it are completely
extinguished and when it ceases to be negotiable.
⚫ This would happen when the party who is ultimately liable on the instrument is
discharged from liability.
⚫ In such a case even in holder in due course does not acquire any right under the
instrument
Modes of Discharge
1. by payment.
2. By Debtor as a holder
2. By express waiver- holder gives up his right.
3. By cancellation-holder may cancel the instrument.
4. by material alteration or lapse of time.
Discharge of a party or parties
1. By payment
2. By cancellation
3. By release (let loose)
4. By allowing drawee more than 48 hours

5. By delay in presentment of cheque

6. Cheque payable to order (fraudlent payee)
7. By operation of law
8. By material alteration
9. By taking limited acceptance
10. By not giving notice of dishonour
Hundis
A hundi is a financial instrument that developed in Medieval India for use in trade and credit
transactions. Hundis are used as a form of remittance instrument to transfer money from place to
place, as a form of credit instrument or IOU to borrow money and as a bill of exchange in trade
transactions.

Types of Hundis
 Sahyog Hundi: This is drawn by one merchant on another, asking the latter to pay the
amount to a third merchant. In this case the merchant on whom the hundi is drawn is of some
'credit worthiness' in the market and is known in the bazaar. A sahyog hundi passes from one
hand to another till it reaches the final recipient, who, after reasonable enquiries, presents it
to the drawee for acceptance of the payment. Sahyog means co-operation in Hindi and
Gujrati, the predominant languages of traders. The hundi is so named because it required the
co-operation of multiple parties to ensure that the hundi has an acceptable risk and fairly
good likelihood of being paid, in the absence of a formalized credit monitoring and reporting
framework.
 Darshani Hundi: This is a hundi payable on sight. It must be presented for payment
within a reasonable time after its receipt by the holder. Thus, it is similar to a demand bill.
 Muddati Hundi: A muddati or miadi hundi is payable after a specified period of time.
This is similar to a time bill.
UNIT-V

UNIVERSAL BANKING

Universal banking is a combination of Commercial banking, Investment banking, Development

banking, Insurance and many other financial activities. It is a place where all financial products
are available under one roof. So, a universal bank is a bank which offers commercial bank
functions plus other functions such as Merchant Banking, Mutual Funds, Factoring, Credit cards,
Housing Finance, Auto loans, Retail loans, Insurance, etc.
Advantages of Universal Banking
The benefits or advantages of universal banking are:-
Investors' Trust: Universal banks hold stakes (equity shares) of many companies. These
companies can easily get other investors to invest in their business. This is because other
investors have full confidence and faith in the Universal banks. They know that the Universal
banks will closely watch all the activities of the companies in which they hold a stake.
Economics of Scale: Universal banking results in economic efficiency. That is, it results in lower
costs, higher output and better products and services. In India, RBI is in favour of universal
banking because it results in economies of scale.
Resource Utilization: Universal banks use their client's resources as per the client's ability to take
a risk. If the client has a high risk taking capacity then the universal bank will advise him to
make risky investments and not safe investments. Similarly, clients with a low risk taking
capacity are advised to make safe investments. Today, universal banks invest their client's money
in different types of Mutual funds and also directly into the share market. They also do equity
research. So, they can also manage their client's portfolios (different investments) profitably.
Profitable Diversification: Universal banks diversify their activities. So, they can use the same
financial experts to provide different financial services. This saves cost for the universal bank.
Even the day-to-day expenses will be saved because all financial services are provided under one
roof, i.e. in the same office.
Easy Marketing: The universal banks can easily market (sell) all their financial products and
services through their many branches. They can ask their existing clients to buy their other
products and services. This requires less marketing efforts because of their well-established
brand name. For e.g. ICICI may ask their existing bank account holders in all their branches, to
take house loans, insurance, to buy their Mutual funds, etc. This is done very easily because they
use one brand name (ICICI) for all their financial products and services.
One-stop Shopping: Universal banking offers all financial products and services under one roof.
One-stop shopping saves a lot of time and transaction costs. It also increases the speed or flow of
work. So, one-stop shopping gives benefits to both banks and their clients.
Disadvantages of Universal Banking
The limitations or disadvantages of universal banking are:-
Different Rules and Regulations: Universal banking offers all financial products and services
under one roof. However, all these products and services have to follow different rules and
regulations. This creates many problems. For e.g. Mutual Funds, Insurance, Home Loans, etc.
have to follow different sets of rules and regulations, but they are provided by the same bank.
Effect of failure on Banking System: Universal banking is done by very large banks. If these huge
banks fail, then it will have a very big and bad effect on the banking system and the confidence
of the public. For e.g. Recently, Lehman Brothers a very large universal bank failed. It had very
bad effects in the USA, Europe and even in India.
Monopoly: Universal banks are very large. So, they can easily get monopoly power in the
market. This will have many harmful effects on the other banks and the public. This is also
harmful to economic development of the country.
Conflict of Interest: Combining commercial and investment banking can result in conflict of
interest. That is, Commercial banking versus Investment banking. Some banks may give more
importance to one type of banking and give less importance to the other type of banking.
However, this does not make commercial sense.
Home banking
The practice of conducting banking transactions from home rather than at branch locations.
Home banking generally refers to either banking over the telephone or on the internet. The first
experiments with internet banking started in the early 1980s, but it did not become popular until
the mid-1990s when home internet access was widespread. Today, a variety of internet banks
exist which maintain few, if any, physical branches.
ATMs (Automated Teller Machines)
ATMs are primarily used for performing some of the banking functions such as the withdrawal
of cash or the deposit of cash/cheque, etc., by using an ATM card.
Convenience of ATMs
 To the customer
• 24/7 access availability
• Less time for transactions (less queue)
• Privacy in transactions
• Any branch/anywhere banking enabled
• Acceptability of card across multiple bank ATMs, even foreign tourists can access
Maestro/visa ATMs
• Other services enabled in ATMs in addition to cash dispending includes clearing cheques
deposits balance enquiry, cheque book requisition, details of recent transactions.
 To the Bank
• Cost of setting up ATMs is lower than setting up a branch
• Migration of the routine transactions to the ATMs frees the bank staff for more
productive work
• ATMs serve as the crucial touch point for cross-selling of the bank’s products
• Enable the banks to display products on the screen and serves as a media for publicity for
the bank
• Less hassle in handling cash.
ATMs customer Inference
The following components of the ATM provide the customer interface:
• Video Display Monitor
• Keyboard/Keypad
• Touch screen
Future perspective of ATMs
The future plans include expanding the network by connecting more ATMs over the next five
years for:
• Increasing the number of transactions per day per ATM
 • Establishing connectivity with point of sale (POS) terminals at merchant establishments
• e-ticketing in railways, roadways and airway
• Providing international payment networks such as VISA and master card.
Internet Banking
⚫ A system allowing individuals to perform banking activities at home, via the internet.
⚫ The automated delivery of new and traditional banking products and services directly to
customers through electronic, interactive communication channels.
⚫ Some online banks are traditional banks which also offer online banking, while others are
online only and have no physical presence.
Who can use internet banking?
Step 1: Access Internet Banking - Obtain your User ID and Passwords.
Step 2: Create your Own Unique User ID.
Step 3: Link the Account Number to your User ID
Advantages
 Cost less
 Transaction speed
 Efficiency
 Speed banking
 Vast coverage
Issues in internet banking
 Security
 Learning difficulties
 Lack of skilled personnel
 Technical breakdowns
 Long start up time
 inexpensive
Security risks
 Increasing number of fraudulent websites
 Fake emails purporting to be sent from banks
 Use of Trojan horse programs to capture user ids and password
Mobile Banking
Use mobile device to connect to a financial institution to view account balances and transactions,
transfer funds between accounts, pay bills, receive account alerts, deposit checks, etc.
Mobile Payment
 Use mobile device for purchase or other payment-related transaction at point of sale
(proximity) or via internet (remote)
 May be conducted via SMS, MMS, mobile Internet, downloadable application,
contactless or barcode technology
 Process and settle over traditional banking networks (credit, debit, ACH), mobile carrier
or other third party network
Forms of Mobile Banking
 SMS (Short Message Service): Send & receive text messages & alerts
 90% of US phones
 Limited to 160 characters
 Uses existing carrier infrastructure
 Less security, no encryption
 WAP (Wireless Application Protocol): Browser access via mobile phone to
Internet content
 60% of US phones
 No downloads required
 For online banking customers
 Small screen, slower data Transmission, expensive data plan
 Downloadable Smartphone Application: User friendly apps customized to
smart phone type
 30% of US phones
 Blackberry, iPhone, Android
 Faster navigation, easy setup , more secure
 Involves custom application development
Mobile Remote Deposit
 Use phone’s camera to capture front & back images of check & send to bank
for deposit
 Expected high adoption rate with consumers and small businesses that process
low check volumes
 Reduces Bank’s paper check process costs
 Less reliance on branch
 USAA first to offer m-RDS
o (Deposit @ Mobile for iPhone & Android)
 Chase Quick Deposit – July 2010
 BoA to launch with iPhone in 2011
Mobile Banking Security
Preventive Measures
Banks
 Secure (encrypt) communication channels: SMS, browser based, downloadable apps
 Assign security levels & user authentication based on payment type, transaction value,
number of daily transactions, etc.
 Set transaction limits
 Know your vendor: ensure mobile apps have built-in safeguards to limit security breaches
in case device lost or stolen
 Apply due diligence for new customers by authenticating account number and user name
 Educate consumers on security policies and tools
Consumers

 Set strong passwords, install anti-virus software on smart phones

 Know the developer before downloading applications
o How well have they tested the app?
o Is it certified?
 Do not store sensitive data on mobile phone
 Receive mobile alerts on potentially fraudulent transactions
Core Banking Solutions
� Sum total of all the information technology components that enable a bank to manage its
core business activities in a centralized model
� Round the clock processing of all the products, services and information of a bank
� 24/7/365 Model
Application Areas
� Balance of payments and withdrawal are done.
� Mobile banking
� Internet banking
� ATM’s
� Recording of transactions
� Passbook maintenance
� Interest calculations on loans and deposits
� Customer records
Technical Terms
� Data Centre (DC) – The place where the central server / servers are housed.
� Disaster Recovery Site (DRS) – An alternate data centre which will act as a backup
resource and ensure business continuity in case of a DC failure.
� Data Mirroring – Storage devices attached to Servers located in DC and DRS are updated
on a real time basis, so that data integrity as well as availability are ensured even in case
of a hardware failure. Bank’s real time data is stored in multiple devices and locations.
� Backup – Data stored in the fixed storage devices are copied on to removable storage
devices / tapes and preserved for any future contingency. These backups are stored in
some off-site location to avoid the damages on account of a disaster like earth quake, fire,
flood etc.
� Leased Lines – These are the primary data links used for CBS networking. These are
analog links on fixed yearly rentals and there are no additional usage charges.
� ISDN Lines – These are the secondary data links put to use in case of a Leased line
failure. These are integrated services digital network lines which can carry various forms
of information packets (data, voice and images and video) as digital signals.
 � Modem – This is networking equipment used to modulate and demodulate the data
signals. Computers work on digital data signals whereas the leased lines can carry only
the analog signals. Modems modulate (convert the digital signals to analog signals) at the
transmitting end and then demodulate (Convert the analog signals to digital signals) at the
receiving end.
� Switch – In a branch there can be more than one computer and these computers are
networked to form a local area network (LAN) using a device called switch.
� Router – Router is another network device that connects different LANs and facilitates
intelligent data transfer. Router also functions as an intelligent switching device between
various connectivity channels, viz., leased line, ISDN, PSTN etc. When the primary link
(LL) is down, it automatically dials the ISDN and re-establishes the network
connectivity.
� Regional Cluster Centre (RCC) - Instead of taking separate links between individual
branches and the data centre, branches in a geographical region are first connected to a
location in that region and this location is then connected to the data centre using links of
higher band width. This location is termed as a regional cluster centre. Some banks also
house their regional data servers in RCC, so that in case of a total network failure
between RCC and DC, branches in that region can continue to operate and also provide
Any Branch Banking (ABB) facilities within the cluster
Need Of Core banking solution
� To meet the intense competition and changing market dynamics in an over banked
environment.
� To meet the regulations and compliance requirements (example in order to meet the
Basel II norms banks must enhance their IT infrastructure).
� To meet the demands of customers who are better informed, more demanding and less
loyal than ever.
� To enhance efficiency and effectiveness.
� Increasing customer satisfaction and convenience
� Freeing up time for branch staff to focus on sales and marketing
� Simplifying process for employees
 � Enhancing the bank’s competitiveness in the market
� Improved process efficiency Shrinking margins.
Benefits to Banks
� Replace old technology seamlessly with a state-of-the-art n-tier application.
� Replace multiple disparate and older generation systems with a single integrated multi-
product processing application across various countries.
� Streamline operations by integrating the enterprise, to existing in-house applications and
to offer a single customer view.
� Create a virtual banking operation from the ground up and offer a host of banking products.
� Enable multiple new delivery channels (Internet Banking, 7 X 24 ATM, Mobile Banking,
Tele-banking, and Point of Sale Terminals) allowing the bank to reach out to new
customers and segments.
� Move to centralized processing and handle much higher volumes without a proportionate
increase in resources or infrastructure costs.
� Use business intelligence tools to analyze customer needs and create new products and
offerings.
� Build and retain customer relationships based on the strength of customer service
capability.
� Enable and modify product offerings quickly and efficiently based on customer’s market
needs.
� Reduce costs, improve bottom-line and stakeholder rewards.
� Quick and easy introduction of new products and services
Benefits to Customer
� Customer can enjoy the Online and real time banking facilities through ATMs
� Point of sale terminals (POS) Internet
� Mobile phones and Kiosks
� Quick realization of instruments lodged for collection
� on-line and easy fund transfer (intra-bank as well as inter-bank) etc
Debit card
A bank-issued card that allows its user to access their funds for the purpose of paying for
merchandise. A debit card acts like a credit card, the difference being that funds are immediately
taken from the cardholders accounts.
Credit card
Pre-approved credit which can be used for the purchase of items now and payment of them later.
Classification of Credit card
Based on mode of credit recovery
• Charge Card-A card that charges no interest but requires the user to pay his/her balance
in full upon receipt of the statement, usually on a monthly basis. While it is similar to a
credit card, the major benefit offered by a charge card is that it has much higher, often
unlimited, spending limits.
• Revolving credit card-A line of credit where the customer pays a commitment fee and is
then allowed to use the funds when they are needed. It is usually used for operating
purposes, fluctuating each month depending on the customer's current cash flow needs
Based on status of credit card
• Standard Card- it is a generally issued credit card
• Business Card- (Executive cards) it is issued to small partnership firms, solicitors, tax-
consultants, for use by executives on their business trips.
• Gold Card-a credit card issued by credit-card companies to favored clients, entitling them
to high unsecured overdrafts, some insurance cover, etc
Based on geographical validity
• Domestic card- Cards that are valid only in India and Nepal are called domestic cards.
• International Card- credit Cards that are valid internationally are called international
cards.
Based on franchise/ Tie-up
• Proprietary card- A bank issues such cards under its own brands. E.g. SBI card Can card
of Canara bank
• Master Card- this card is issued under the umbrella of “MasterCard International”
• VISA Card – it is issued by any bank having tie up with “VISA international”
 • Domestic Tie-up Card- it is issued by any bank having tie up with domestic credit card
brands such as Can Card and Ind Card.
Based on issuer Category
• Individual Cards- Non-corporate cards that are issued to individuals
• Corporate Cards- Issued to corporate and business firms.
Smart card
The smart card looks exactly like any other plastic card or an ATM card with an integrated
circuit (IC Chip) 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 contacts are specified by an international standard, so that cards can
interact with a variety of equipment.
Electronic Payment systems
Electronic Payment is a financial exchange that takes place online between buyers and sellers.
The content of this exchange is usually some form of digital financial instrument (such as
encrypted credit card numbers, electronic Cheques or digital cash) that is backed by a bank or an
intermediary, or by a legal tender.
Electronic payment system is a system which helps the customer or user to make online payment
for their shopping.
The various factors that have lead the financial institutions to make use of electronic payments
are:
Decreasing technology cost:
The technology used in the networks is decreasing day by day.
Reduced operational and processing cost:
Due to reduced technology cost the processing cost of various commerce activities
becomes very less. A very simple reason to prove this is the fact that in electronic transactions
we save both paper and time.
Increasing online commerce:
Some Examples of EPS
 Online Reservation
 Online Bill Payment
  Online Order Placing (Nirulas)
 Online Ticket Booking ( Movie)
Two Storage Methods
 On-line
 Individual does not have possession personally of electronic cash
 Trusted third party, e.g. online bank, holds customers’ cash accounts
 Off-line
 Customer holds cash on smart card or software wallet
 Fraud and double spending require tamper-proof encryption
Types of EPS
1. E-cash: A system that allows a person to pay for goods or services by transmitting a
number from one computer to another. Like the serial numbers on real currency notes,
the E-cash numbers are unique. This is issued by a bank and represents a specified sum
of real money.
2. E-wallets: The E-wallet is another payment scheme that operates like a carrier of e-cash
and other information. The aim is to give shoppers a single, simple, and secure way of
carrying currency electronically. Trust is the basis of the e-wallet as a form of electronic
payment.
3. smart cards
4. credit cards
Microsoft cheque truncation
 Movement of the physical instrument is curtailed
 Image of the payment instrument is captured along with MICR data simultaneously
 Clearing Process completed based on Electronic data and image of the Cheques
Benefits of the cheque truncation system
 Facilitate Banks to increase productivity and avail all the benefits of smarter technology
of Electronic Cheque Presentment
 Better Operational efficiency
 Faster clearing cycle of payment instruments
 Cost saving in terms of storage and transport cost
  Optimal Customer satisfaction
Business Opportunities - Banks
• Improved handling of post-dated Cheques deposited by the customer, as the images can
be scanned and stored and the system can automatically process the scanned images on
the due date.
• Improved business intelligence systems can be put in place.
• Introduction of new payment system products like e-Cheques
• Better funds management
• Reduction in Transaction cost
• Better management of space and manpower
• Improved regulatory compliance.
• Improved Management Information Systems which will facilitate better decision making.
Business Opportunities - Customer
• Faster realization of Funds
• Better funds management
• Can avoid visit to the Branch as more outlets will be available for depositing Cheques for
clearing, at convenient locations.
Business Opportunities -Vendors
• Upgrade of Technology opens up new business opportunities for vendors and solution
providers.
• Can improve the Brand image of their products by providing improved functionalities for
image capture, storage and retrieval
• Scope for improvement in processing capabilities , especially scanners and servers
Point of Truncation
• Originating Branch
• ATM / Customer Location
• An identified Branch for a Cluster of Branches
• Service Bureau
• Service Branch of Originating Bank
Factors to decide point of Truncation
• Infrastructure required
• Capital Cost for set up
• Recurring Costs
• Distance of the Originating branches from the point of truncation
• Technology used
• Volume of Cheques / images that will be processed
• Facilities available for storing the Cheques & images and their retrieval
• PC with printer
• Scanner
• Network
• The configuration of scanner will depend on the volume of Cheques ( Documents per
minute) - Approximate capacity – 30 documents per minute (DPM)
• Capacity of scanner - Documents per minute
• Storage of Images – ( Size of 3 prescribed images along with Digital Signature – 75 KB )
• Front Gray Scale, Front Black & White and Reverse Black and White
ECS (Electronic Clearing Service)
 Electronic mode of payment / receipt for 1 transactions that are repetitive and periodic in
nature.
 ECS is used by institutions for making bulk 2 payment of amounts towards distribution of
dividend, interest, salary, pension, etc
 For bulk collection of amounts towards telephone 3 / electricity / water dues, cess / tax
collections, loan installment repayments, periodic investments in mutual funds,
insurance premium etc
Parties involved in ECS payment system
• Payee- one who is going to receive
• Payer- one who is going to pay
• Payee’s bank
• Payer’s bank
• Clearing House- Facilitates the interaction between two banks
Prerequisites to avail the ECS facility
• Both the parties must have bank accounts
• Banks involved have to be the member of the local clearing house
Types of ECS process
• Credit request
• Example of a credit request:
• Jivan Tyres Ltd. has to pay monthly salaries to its employees who have
accounts across different banks
• The initiator can be the paying bank, requesting a credit to the receiving bank
• Debit Request
• Example of a Debit request
• State Electricity board wants to receive monthly bill payments
monthly from its customers
• In this case the initiator of the process is the payee’s bank
Payment process in case of a cheque
• Initiator is always the presenting bank (the bank that demands payment and further
receives payment) requesting the debit to the paying bank
EFT (Electronic Fund Transfer)
⚫ Exchange of money from one account to another through computer
⚫ Cardholder-initiated transactions, using a payment card such as a credit or debit card
⚫ Direct deposit payment initiated by the payer
⚫ Direct debit payments, sometimes called electronic checks, for which a business debits
the consumer's bank accounts for payment for goods or services
⚫ Wire transfer via an international banking network such as SWIFT
⚫ Electronic bill payment in online banking, which may be delivered by EFT or paper
check
⚫ Transactions involving stored value of electronic money, possibly in a private currency
Process of EFT
⚫ Entering Supplier Master Information
⚫ Entering Payment Instrument Defaults
 ⚫ Entering Bank Account Information
Various modes of EFT in India

⚫ NEFT-NATIONAL ELECTRONIC FUNDS TRANSFER

⚫ RTGS-REAL-TIME GROSS SETTLEMENT
⚫ IMPS-IMMEDIATE PAYMENT SERVICE
NEFT-National Electronic Funds Transfer
⚫ The National Electronic Funds Transfer is a nation-wide money transfer system which
allows customers with the facility to electronically transfer funds from their respective
bank accounts to any other account of the same bank or of any other bank network
⚫ Funds transfer through NEFT requires a transferring bank and a destination bank.
⚫ Before transferring funds via NEFT you register the beneficiary, receiving funds. For
this you must possess information such as name of the recipient, recipient’s bank name, a
valid account number belonging to the recipient and his respective bank’s IFSC code.
⚫ Any sum of money can be transferred using the NEFT system with a maximum capital of
Rs. 10, 00, 000.
RTGS- Real time Gross Settlement
⚫ It is a real time funds transfer system which facilitates you to transfer funds from one
bank to another in real time or on a gross basis. The transaction isn’t put on a waiting list
and cleared out instantly.
⚫ RTGS payment gateway, maintained by the Reserve Bank of India makes transactions
between banks electronically. The transferred amount is instantly deducted from the
account of one banks and credited to the other bank’s account.
⚫ The minimum value that can be transferred using RTGS is Rs. 2 Lakhs and above.
However there is no upper cap on the amount that can be transacted.
⚫ The remitting customer needs to add the beneficiary and his bank account details prior to
transacting funds via RTGS. The details required while transferring funds would be the
beneficiary’s name; his/her account number, receiver’s bank address and the IFSC code
of the respective bank.
IMPS- Immediate Payment Service
⚫ The National Payments Corporation of India introduced a pilot
mobile payment project also known as the Immediate Payment
Service (IMPS).
⚫ IMPS offers instant electronic transfer service using mobile
phones. The IMPS service also features a secure transfer gateway
and an immediate confirmation on fulfilled orders.
⚫ IMPS is offered on all the cellular devices via Mobile Banking or through SMS
facility.
⚫ To be able to transfer money via IMPS route you must first register
for the immediate payment services with your bank
⚫ Thus IMPS enables customers to use mobile instruments as an
instant money transfer gateway, facilitating user convenience and
saving time and effort involved in other modes of transfer.
Advantages of EFT
⚫ Increase efficiency and productivity.
⚫ Manage cash flow easily.
⚫ Improve safety and control.
⚫ Saves money.
⚫ Less paper works.
⚫ Eliminate the risks associated with lost, stolen, or misdirected cheques
⚫ EFT Provides our office with the capacity to,
 Automate our payments.
 Electronically update our accounts information.
 Streamline our cash flow.
 Reduce administrative cost.
 Eliminate overdue accounts.
 Manage delayed disbursements.
 Get set up and add customers.