Chapter – 1 (Automated Business Process)

Introduction to Flowcharts (1.4)

 A Flowchart is a diagram that describes a process or operation.
 It includes multiple steps, through which the process "flows" from start to finish.
 Flowcharts are used in designing and documenting simple processes or programs.
 Flowcharts help visualize what is going on and thereby help understand a process, and perhaps
also find flaws, bottlenecks, and other less-obvious features within it.
 There are many different types of flowcharts, and each type has its own collection of boxes and
notational conventions. The two most common types of boxes in a flowchart are as follows:
 A processing step, usually called activity and denoted as a rectangular box.
 A decision usually denoted as a diamond.

Advantages of Flow Chart: (1.6) Limitations of Flow Chart: (1.7)

(Ca Question Paper is Difficult but IT is (MR Lal Chand Sharma )

Easy ) 1. Modification
1. Communication 2. Reproduction
2. Quicker grasp of relationship 3. Link between conditions and actions
3. Program debugging 4. Complex logic
4. Documentation 5. Standardization
5. Identifying responsibilities
6. Efficient coding
Others
7. Effective analysis
8. Efficient program maintenance
9. Establishing controls

Business Process Automation (BPA) (1.15)

1. Business Process Automation (BPA) is the technology-enabled automation of activities or services that
accomplish a specific function and can be implemented for many different functions of company
activities, including sales, management, operations, supply chain, human resources, information
technology, etc.
2. In other words, BPA is the tactic a business uses to automate processes to operate efficiently and
effectively.
3. It consists of integrating applications and using software applications throughout the organization.
4. BPA is the tradition of analyzing, documenting, optimizing and then automating business processes.

1
Factors affecting BPA success: (1.15) Benefits of BPA: (1.16)
1. Quality & consistency
(Thanks C A Institute) 2. Time saving
1. Timeliness 3. Visibility
2. Confidentiality 4. Improved operational efficiency
3. Availability 5. Governance & Reliability
6. Reduced turnaround times
4. Integrity 7. Reduced costs

Which Business Processes should be Challenges involved in Business Process

automated? (1.17) Automation (1.17)
1. Processes involving high-volume of tasks or (All Students of Deepak sir is Intelligent )
repetitive tasks
2. Processes requiring multiple people to 1. Automating Redundant Processes
execute tasks 2. Staff Resistance
3. Time-sensitive processes
4. Processes involving need for compliance and 3. Defining Complex Processes
audit trail 4. Implementation Cost
5. Processes having significant impact on other
processes and systems

Implementation of BPA: (1.18)

(Steps)
1. Define why we plan to implement a BPA
2. Understand the rules/regulation under which enterprise needs to comply with
3. Document the process, we wish to automate
4. Define the objectives/goals to be achieved by implementing BPA
5. Engage the business process consultant
6. Calculate the RoI for project
7. Developing the BPA
8. Testing the BPA

Enterprise Risk Management (ERM) (1.25)

1. ERM may be defined as a process, affected by an entity’s Board of Directors, management and other
personnel
2. ERM is that every entity, whether for profit, not-for-profit, or a governmental body
3. All entities face uncertainty, and the challenge for management is to determine how much uncertainty
4. ERM provides a framework for management to effectively deal with uncertainty
5. ERM includes the methods and processes used by organizations to manage risks and seize
opportunities

2
Benefits of ERM: (1.26) Components of ERM: (1.27)

(R S Pay in E M I) (E M I Increase Order Cost )

1. Rationalize capital 1. Event identification
2. Seize opportunities 2. Monitoring
3. Provide integrated responses to multiple risks 3. Information and communication
4. Enhance risk response decision 4. Internal environment
5. Minimize operational surprises and losses 5. Objective setting
6. Identify and manage cross-enterprise risks 6. Control activities
Others Others
7. Align risk appetite and strategy 7. Risk assessment
8. Link growth, risk and return 8. Risk response

Internal Control: (1.29)

 company's management team is responsible for the development of internal control policies and procedures
 SA 315 defines the system of Internal Control as “the process designed, implemented and maintained by
those charged with governance, management and other personnel to provide reasonable assurance about the
achievement of an entity’s objectives
An Internal Control System –
 Facilitates the effectiveness and efficiency of operations.
 Helps ensure the reliability of internal and external financial reporting.
 Assists compliance with applicable laws and regulations.
 Helps safeguarding the assets of the entity.

Components of Internal Control: (1.29) Limitations of Internal Control system: (1.31)

(Ca Most Important & Reasonable Course) 1. Management’s consideration that the cost of an
internal control does not exceed the expected
1. Control environment benefits to be derived
2. Monitoring of controls 2. The fact that most internal controls do not tend to
be directed at transactions of unusual nature. The
3. Information & communication potential for human error, such as, due to
4. Risk assessment carelessness, distraction, mistakes of
5. Control activities judgment and misunderstanding of
instructions.
3. The possibility of circumvention (fraud) of
internal controls through collusion with
employees or with parties outside the entity.
4. The possibility that a person responsible for
exercising an internal control could abuse that
responsibility, for example, a member of
management overriding an internal control.
5. Manipulations by management with respect to
transactions or estimates and judgements
required in the preparation of financial
statements.

3
The IT Act, 2000 (1.31)
 This Act aims to provide the legal infrastructure for e-commerce in India. And the cyber laws
have a major impact for e-businesses and the new economy in India.
 It is important to understand what are the various perspectives of the IT Act, 2000 (as
amended in 2008) and what it offers.
 The Act also aims to provide for the legal framework so that legal sanctity is accorded to all
electronic records and other activities carried out by electronic means.
 The Act states that unless otherwise agreed, an acceptance of contract may be expressed by
electronic means of communication and the same shall have legal validity and enforceability.

Cyber Crime (1.32)

Cyber Crime is not different than the traditional crime. The only difference is that in Cyber Crime
the computer technology is involved and thus it’s a Computer related crime.
Hacking:
 Many business organizations store their confidential information in computer systems
which are often targeted by rivals, criminals and disgruntled employees.
 Hacking generally refers to unauthorized intrusion into a computer or a network.
 This may be done by either altering system or security features to accomplish a goal that
differs from the original purpose of the system.
 For example - Mr. A, a cyber-criminal while sitting in his own house, through his computer
hacks the computer of Mr. B and steals the data saved in B’s computer without physically
touching the computer or entering in B’s house.

Computer related offences: (1.32) Privacy (1.33)

1. Harassment via fake public profile on social
(The main principles on data protection and
networking site
2. Email account hacking privacy enumerated under the IT Act, 2000 are)
3. Credit card fraud 1. Defining ‘data’, ‘computer database’,
4. Introducing Viruses, Worms, Backdoors, ‘information’, ‘electronic form’, ‘originator’,
Rootkits, Trojans, Bugs ‘addressee’ etc.
5. Online sale of illegal articles 2. creating civil liability if any person accesses
6. Theft of confidential information or secures access to computer, computer
7. Source code theft system or computer network
8. Cyber terrorism 3. creating criminal liability if any person
9. Web defacement accesses or secures access to computer,
10. Cyber pornography computer system or computer network
11. Phishing and Email scams
4. declaring any computer, computer system or
computer network as a protected system
5. imposing penalty for breach of
confidentiality and privacy
6. Setting up of hierarchy of regulatory
authorities, namely adjudicating officers, the
Cyber Regulations Appellate Tribunal etc.

4
key provisions of IT Act related to IT offences (1.34)
[Section 43] Penalty and compensation for damage to computer, computer system, etc.
(If any person without permission of the owner or any other person who is in-charge of a computer,
computer system or computer network) -
(a) accesses or secures access to such computer, computer system or computer network or
computer resource;
(b) downloads, copies or extracts any data, computer database or information from such
computer, computer system or computer network including information or data held or stored
in any removable storage medium;
(c) introduces or causes to be introduced any computer contaminant or computer virus into
any computer, computer system or computer network;
(d) damages or causes to be damaged any computer, computer system or computer network, data,
computer database or any other programmes residing in such computer, computer system or
computer network;
(e) disrupts or causes disruption of any computer, computer system or computer network;
(f) denies or causes the denial of access to any person authorized to access any computer,
computer system or computer network by any means;
(g) provides any assistance to any person to facilitate access to a computer, computer system or
computer network in contravention of the provisions of this Act, rules or regulations made
there under;
(h) charges the services availed of by a person to the account of another person by
tampering with or manipulating any computer, computer system, or computer network;
(i) destroys, deletes or alters any information residing in a computer resource or diminishes its
value or utility or affects it injuriously by any means;
(j) steal, conceals, destroys or alters or causes any person to steal, conceal, destroy or alter any
computer source code used for a computer resource with an intention to cause damage,

He shall be liable to pay damages by way of compensation to the person so affected.

Sensitive Personal Data Information(SPDI) (1.39)

 Reasonable Security Practices and Procedures and Sensitive Personal Data or Information Rules
2011 formed under Section 43A of the Information Technology Act 2000
 Rule 2(i) defines personal information as “information that relates to a natural person which either
directly or indirectly
 Rule 3 defines sensitive personal information as Passwords; Financial information;
Physical/physiological/mental health condition; Sexual orientation; Medical records and history; and
Biometric information
 Consent to collect: Rule 5(1) requires that Body Corporate should, prior to collection, obtain
consent in writing through letter or fax or email from the provider of sensitive personal data
regarding the use of that data.
 Consent to Disclosure: Rule 6 provides that Disclosure of sensitive personal data or information by
body corporate to any third party shall require prior permission from the provider of such
information.

5
(Start from 1.36)  [Section 66E] Punishment for violation of
privacy
 [Section 43A] Compensation for failure to
protect data  [Section 66F] Punishment for cyber terrorism
 [Section 65] Tampering with Computer  [Section 67] Punishment for publishing or
Source Documents transmitting obscene material in electronic
 [Section 66] Computer Related Offences form
 [Section 67A] Punishment for publishing or
 [Section 66B] Punishment for dishonestly
transmitting of material containing sexually
receiving stolen computer resource or
explicit act, etc. in electronic form
communication device
 [Section 67B] Punishment for publishing or
 [Section 66C] Punishment for identity theft
transmitting of material depicting children in
 [Section 66D] Punishment for cheating by sexually explicit act, etc. in electronic form
personation by using computer resource

Some Definitions in IT Act (1.35) The Companies Act, 2013 (1.40)

 Section 134 of the Companies Act, 2013 on
The IT Act, 2000 defines the terms: “Financial statement, Board’s report, etc.”
states inter alia
 Access in Section 2(a),  Section 143, of the Companies Act 2013, on
 Computer in Section 2(i), “Powers and duties of auditors and auditing
standards” states inter alia
 Computer network in Section (2j),
 Data in Section 2(o) and
 Information in Section 2(v).

The Corporate Governance framework consists of: (1.42)

(i) Explicit and implicit contracts between the company and the stakeholders for distribution of
responsibilities, rights, and rewards.
(ii) procedures for reconciling the sometimes-conflicting interests of stakeholders in accordance with their
duties, privileges, and roles, and
(iii) Procedures for proper supervision, control, and information-flows to serve as a system of checks-
and-balances.

6
 Chapter – 2 (Financial and accounting systems)
Front End & Back End (2.3)
 Front End – It is part of the overall software which actually interacts with the user who
is using the software.
 Back End – It is a part of the overall software which does not directly interact with the
user, but interact with Front End only.
Example:-
If a user wants to have some information from the system, i.e. Balance Sheet.
 User will interact with Front End part of the software and request front end to generate
the report.
 Front End will receive the instruction from user and pass it on to the back end.
 Back End will process the data, generate the report and send it to the front end. Front
end will now display the information to user.
 This is how the process gets completed each and every time.

Why separate front end and back end software? Why not only one? (2.4)

(Do U Love Study if yes then Pass)

1. Domain expertise
2. User interface
3. Language
4. Speed
5. Presentation

Application Software (2.5)

 Application software performs many functions such as receiving the inputs from the
user, interprets the instructions and performs logical functions so a desired output is
achieved.
 Examples of application software would include SAP, Oracle Financials, MFG Pro etc.
 In most software, there are three layers which together form the application namely; an
Application Layer, an Operating System Layer and a Database Layer. This is called Three
Tier architecture.
o The Application Layer receives the inputs from the users and performs certain
validations like, if the user is authorized to request the transaction.
o The Operating System Layer then carries these instructions and processes them
using the data stored in the database and returns the results to the application
layer.
o The Database Layer stores the data in a certain form. For a transaction to be
completed.

1
Installed Applications V/s Cloud-based Applications (2.5)
Installed Applications:
 These are programs that are installed on the hard disc of the user’s computer.
Cloud Applications:
 Web Applications are not installed on the hard disc of the user’s computer, and
are installed on a web server and accessed using a browser and internet
connection. As technology and net connectivity improved virtually, all web based
applications have moved to cloud based applications.
 These days many organizations do not want to install Financial Applications on their
own IT infrastructure.
 For many organizations, the thought process is that it is not their primary function to
operate complex IT systems and to have a dedicated IT team and hardware which
requires hiring highly skilled IT resources and to maintain the hardware and software
to run daily operations.
 The costs may become prohibitive.
 Thus, organizations increasingly are hosting their applications on Internet and outsource
the IT functions.
 There are many methods through which this can be achieved. Most common among
them being SaaS – Software as a Service or IaaS – Infrastructure as a Service of
Cloud Computing.

Difference between (Advantages and disadvantages of) Installed and Cloud-based

Applications (2.6)
1. Installation & Maintenance
2. Accessibility
3. Mobile Application
4. Data storage
5. Data security
6. Performance
7. Flexibility

Installed Applications:- Cloud-based Applications:-

Advantages :- 4, 5, 6, 7 Advantages :- 1, 2, 3
Disadvantages :- 1, 2, 3 Disadvantages :- 4, 5, 6, 7

2
Enterprise Resource Planning (ERP) Systems (2.8)
 It is an overall business management system that caters need of all the people
connected with the organization. Every organization uses variety of resources in
achieving its organization goals.
 ERP is an enterprise-wide information system designed to coordinate all the
resources, information, and activities needed to complete business processes
such as order fulfillment or billing.
 Accounting and Finance function is considered as backbone for any business.
Hence Financial & Accounting Systems are an important and integral part of
ERP systems.
 ERP system includes so many other functions also. An ERP system supports most of
the business system that maintains in a single database the data needed for a
variety of business functions such as- Manufacturing, Supply Chain Management,
Financials, Projects, Human Resources and Customer Relationship Management.
 An ERP system is based on a common database and a modular software design.
The common database can allow every department of a business to store and
retrieve information in real-time.
 The information should be reliable, accessible, and easily shared. The modular
software design should mean a business can select the modules they need, mix and
match modules from different vendors, and add new modules of their own to improve
business performance.
 Ideally, the data for the various business functions are integrated. In practice the
ERP system may comprise a set of discrete applications, each maintaining a discrete
data store within one physical database.
 Some of the well-known ERP Software in the market today include SAP, Oracle,
MFG Pro, and MS Axapta etc.

Data Warehouse (2.9)

 Data Warehouse is a module that can be accessed by an organization’s customers,
suppliers and employees.
 It is a repository of an organization’s electronically stored centralized data.
 Data warehouses are designed to facilitate reporting and analysis. This classic
definition of the data warehouse focuses on data storage.
 The process of transforming data into information and making it available to the user
in a timely enough manner to make a difference is known as Data Warehousing.
 The means to retrieve and analyze data, to extract, transform and load data, and to
manage the data dictionary are also considered essential components of a data
warehousing system.
 An expanded definition of data warehousing includes business intelligence tools, tools to
extract, transform, and load data into the repository, and tools to manage and retrieve
metadata.
 In contrast, the data warehouses are operational systems which perform day-to-day
transaction processing.

3
Benefits of an ERP System(2.10)
1. Reduction of lead-time
2. Reduction in Cycle Time
3. On-time Shipment
4. Reduced Quality Costs
5. Information integration
6. Better Customer Satisfaction
7. Improved Resource utilization
8. Better Analysis and Planning Capabilities
9. Improved information accuracy and decision-making capability
10. Use of Latest Technology
11. Improved Supplier Performance
12. Increased Flexibility

ERP Implementation, its Risks and related Controls

(A): Risks and corresponding Controls related to People Issues (2.13)

(Ca Student Trained and Talented in Career)

1. Change Management
2. Staff Turnover
3. Training
4. Top Management Support
5. Consultant
(B): Risks and corresponding Controls related to Process Risks (2.14)

(Blood Pressure)
1. Business Process Reengineering (BPR)
2. Program Management

(C): Risks and corresponding Controls related to Technological Risks (2.15)

All Students Educated in Technology)

(
1. Application Portfolio Management
2. Software Functionality
3. Enhancement and Upgrades
4. Technological Obsolescence

4
(D): Risks and corresponding Controls related to some other implementation issues (2.15)

(Deepakagarwal’s Student Super Duper in IT and Love)

1. Data Safety
2. Speed of Operation
3. System Failure
4. Data Access
5. Insufficient Funding
6. Lengthy implementation time
(E): Risks and corresponding Controls related to post-implementation issues (2.16)
1. Lifelong Commitment

Role Based Access Control (RBAC) in ERP System (2.17)

 In computer systems security, Role-Based Access Control is an approach to
restricting system access to authorized users.
 RBAC sometimes referred to as Role- Based Security is a policy neutral access control
mechanism defined around roles and privileges that lets employees having access
rights only to the information they need to do their jobs and prevent them from
accessing information that doesn't pertain to them.
 It is used by most enterprises and can implement Mandatory Access Control (MAC)
or Discretionary Access Control (DAC).
 MAC criteria are defined by the system administrator, strictly enforced by the
Operating System and are unable to be altered by end users. Only users or
devices with the required information security clearance can access protected
resources. A central authority regulates access rights based on multiple levels of
security. Organizations with varying levels of data classification, like government
and military institutions, typically use MAC to classify all end users.
 Whereas, DAC involves physical or digital measures and is less restrictive than
other access control systems as it offers individuals complete control over the
resources they own. The owner of a protected system or resource sets policies
defining who can access it.
 The components of RBAC such as - role-permissions, user-role and role-role
relationships make it simple to perform user assignments.
 RBAC can be used to facilitate administration of security in large organizations
with hundreds of users and thousands of permissions. Roles for staff are defined
in organization and permission to access a specific system or perform certain
operation is defined as per the role assigned.
 Example: a junior accountant in accounting department is assigned a role of recording
basic accounting transactions, an executive in human resource department is assigned a
role of gathering data for salary calculations on monthly basis, etc.

5
ERP Modules
Financial Accounting Module (2.20)

(key features of this module)

1. General Ledger Accounting
2. Tax Configuration & Creation and Maintenance of House of Banks
3. Account Payables
4. Account Receivables
5. Asset Accounting
6. Integration with Sales and Distribution and Materials Management
7. Tracking of flow of financial data across the organization in a controlled manner and
integrating all the information for effective strategic decision making
8. Creation of Organizational Structure
9. Financial Accounting Global Settings

Controlling Module (2.20)

 This module facilitates coordinating, monitoring, and optimizing all the processes in
an organization. It controls the business flow in an organization.
 This module helps in analyzing the actual figures with the planned data and in
planning business strategies.
 Two kinds of elements are managed in Controlling Module −Cost Elements and
Revenue Elements. These elements are stored in the Financial Accounting module.

Key features of this module

(Indian C A Course is Popular Perfect and Profitable)
1. Internal Orders
2. Cost Element Accounting
3. Activity-Based-Accounting
4. Cost Centre Accounting
5. Product Cost Controlling
6. Profitability Analysis
7. Profit Centre Accounting

6
Sales and Distribution Module (2.21)
 Sales and Distribution is one of the most important modules. It has a high level of
integration complexity.
 Sales and Distribution is used by organizations to support sales and distribution
activities of products and services, starting from enquiry to order and then
ending with delivery.
 Sales and Distribution can monitor a plethora of activities that take place in an
organization such as - products enquires, quotation (pre-sales activities), placing
order, pricing, scheduling deliveries (sales activity), picking, packing, goods issue,
shipment of products to customers, delivery of products and billings.
 In all these processes, multiple modules are involved such as - FA (Finance &
Accounting), CO (Controlling), MM (Material Management), PP (Production Planning),
LE (Logistics Execution), etc.; which shows the complexity of the integration involved.

Key features of this module (2.22)

(Deepak Agarwal’s Student Super and Sincere)
1. Defining Pricing Components
2. Assigning Organizational Units
3. Setting up Organization Structure
4. Setting up sales document types, billing types, and tax-related components
5. Setting up Customer master data records and configuration
Sales and Distribution process (2.22)
1. Pre sales activities
2. Sales order
3. Inventory sourcing
4. Material delivery
5. Billing
6. Receipt from customer/Payment

Material Management (MM) Module (2.25)

 Material Management (MM) Module as the term suggests manages materials required,
processed and produced in enterprises. Different types of procurement processes are managed
with this system.
 Some of the popular sub-components in MM module are vendor master data; consumption
based planning, purchasing, inventory management, invoice verification and so on.
 Material Management also deals with movement of materials via other modules like -
logistics, Supply Chain Management, sales and delivery, warehouse management, production
and planning.
Purchase Process
1. Purchase Requisition from Production Department
2. Evaluation of Requisition
3. Asking for Quotation

7
 4. Evaluation of Quotations
5. Purchase Order
6. Material Receipt
7. Issue of Material
8. Purchase Invoice
9. Payment to Vendor
Quality Management Module (2.26)
 Quality Management (QM) Module helps in management of quality in productions
across processes in an organization.
 This module helps an organization to accelerate their business by adopting a structured and
functional way of managing quality in different processes.
 Quality Management module collaborates in procurement and sales, production, planning,
inspection, notification, control, audit management and so on.
Quality Management Process (2.28)
1. Master data and standards are set for quality management
2. Set Quality Targets to be met
3. Quality management plan is prepared
4. Define how those quality targets will be measured
5. Take the actions needed to measure quality
6. Identify quality issues and improvements and changes to be made
7. In case of any change is needed in the product, change requests are sent
8. Report on the overall level of quality achieved
9. Quality is checked at multiple points, e.g. inwards of goods at warehouse, manufacturing,
procurement, returns
Process in Quality Management Module (2.27)
1. Quality Planning
2. Quality Control
3. Quality Assurance
4. Quality Improvement
Customer Relationship Management (CRM) (2.30)
 Customer Relationship Management is a system which aims at improving the
relationship with existing customers, finding new prospective customers, and
winning back former customers.
 This system can be brought into effect with software which helps in collecting,
organizing, and managing the customer information.
 Information in the system can be accessed and entered by employees in different
departments, such as - sales, marketing, customer service, training, professional
development, performance management, human resource development, and
compensation.
 Details on any customer contacts can also be stored in the system. The rationale
behind this approach is to improve services provided directly to customers and to
use the information in the system for targeted marketing.
 CRM manages the enterprise’s relationship with its customers. This includes
determining who the high-value customers are and documenting what interactions
the customers have had with the enterprise.
 Implementing a CRM strategy is advantageous to both small-scale and large-scale
business ventures.

8
Benefits of CRM module: (2.31)

( I M Boss Of IT/India)
1. Improve customer relations
2. Maximize up-selling and cross-selling
3. Better internal communication
4. Optimize marketing
5. Increase customer revenues
Plant Maintenance (PM) Module (2.28)
 Plant Maintenance (PM) is a functional module which handles the maintaining of
equipment and enables efficient planning of production and generation schedules.
 This application component provides us a comprehensive software solution for all
maintenance activities that are performed within a company.
 It supports cost- efficient maintenance methods such as - risk-based maintenance or
preventive maintenance, and provides comprehensive outage planning and powerful
work order management.
Objectives of PM Module
(i) To achieve minimum breakdown and to keep the plant in good working condition at the lowest
possible cost.
(ii) To keep machines and other facilities in a condition that permits them to be used at their optimum
(profit making) capacity without any interruption or hindrance.
(iii) To ensure the availability of the machines, buildings and services required by other sections of
the factory for the performance of their functions at optimum return on investment whether this
investment be in material, machinery or personnel.
Process in Plant Maintenance
1. Equipment Master is a repository of the standard information that one needs related to a specific
piece of equipment.
2. Equipment/Plant Maintenance provides a variety of reports to help us to review and manage
information about our equipment and its maintenance.
3. Plant Maintenance (PM) Reports are used to review and manage information about preventive
maintenance schedules and service types within any maintenance organization.

9
Human Resource Module (2.23)
 This module enhances the work process and data management within HR department of
enterprises.
 Right from hiring a person to evaluating one’s performance, managing promotions,
compensations, handling payroll and other related activities of an HR is processed using
this module.
 The most important objective of master data administration in Human Resources is to
enter employee-related data for administrative, time-recording, and payroll purposes.
 Payroll and Personnel departments deal with Human Resource of the organization.
This department maintains total employee database. Wage and attendance related
information comes to this department. They also prepare wage sheet for workmen; handle
Provident Fund, ESI related formalities. This is perhaps the only module, which exchange
very few information with other modules.
 Concerning manpower, its requirement and utilization is one of the major chunks of profit for
an organization. So, in this regard, every aspect of business transaction is taken care of by
defining the master shifts master, PF ESI (Employees’ State Insurance) master, leave,
holiday, loans, employee master, operations and sub- operations masters etc.
 Usage of magnetic card or finger print recognition devices will help to improve the
attendance system and provide an overall security in terms of discarding proxy
attendance.
 This module will also deal with the financial entries like advance or loan to employees.
 From Holiday master provided with the module, the user could feed all possible holidays
at the beginning of a year, so leave related information can be automated. This module will
generate monthly wage sheet from which the salary payment can be made and respective
accounts will be updated.

Production Planning (PP) Module (2.24)

 Production Planning (PP) Module is another important module that includes software
designed specifically for production planning and management.
 This module also consists of master data, system configuration and transactions to
accomplish plan procedure for production.
 PP module collaborates with
 Master Data, Sales and Operations Planning (SOP), Distribution Resource Planning
(DRP), Production Planning, Material Requirements Planning (MRP), Capacity
Planning, Product Cost Planning and so on while working towards production
management in enterprises.

Project Systems Module (2.29)

 This is an integrated project management tool used for planning and managing
projects and portfolio management.
 It has several tools that enable project management process such as - cost and planning
budget, scheduling, requisitioning of materials and services, execution, until the project
completion.
 Project System is closely integrated with other ERP modules like - Logistics, Material
Management, Sales and Distribution, Plant Maintenance, and Production Planning module etc.

10
 Before a project is initiated, it is required that project goal is clearly defined and the
activities be structured.
 The Project Manager has a task to ensure that these projects are executed within budget and
time and to ensure that resources are allocated to the project as per the requirement.
 In Project System, each process has a defined set of tasks to be performed known as
process flow in Project Lifecycle. When a project request is received, a project is created and
it undergoes the following steps in project process flow / lifecycle.
Supply Chain Module (2.30)
 A Supply Chain is a network of autonomous or semi-autonomous business entities
collectively responsible for procurement, manufacturing, and distribution activities associated
with one or more families of related products.
 This module provides extensive functionality for logistics, manufacturing, planning, and
analytics involving the activities like inventory, supply chain planning, supplier scheduling, claim
processing, order entry, purchasing, etc.
 In other words, a supply chain is a network of facilities that procure raw materials, transform
them into intermediate goods and then finished products, and then finally deliver the
products to customers through a distribution system or a chain.
 You can optimize your supply chain for months in advance; streamline processes such as -
supply network, demand, and material requirement planning; create detailed scheduling; refine
production integration, and maximize transportation scheduling.
Data Analytics (2.32)
 Data Analytics is the process of examining data sets to draw conclusions about the
information they contain, increasingly with the aid of specialized systems and
software.
 Data analytics technologies and techniques are widely used in commercial industries to
enable organizations to make more-informed business decisions and by scientists
and researchers to verify or disprove scientific models, theories and hypotheses.
 As a term, Data Analytics predominantly refers to an assortment of applications,
from basic Business Intelligence (BI), reporting and Online Analytical Processing
(OLAP) to various forms of advanced analytics.
 People use data analytics specifically to mean advanced analytics, treating
Business Intelligence (BI) as a separate category.
 Data Analytics initiatives can help businesses increase revenues, improve
operational efficiency, optimize marketing campaigns and customer service efforts,
respond more quickly to emerging market trends and gain a competitive edge over
rivals -- all with the goal of boosting business performance.

Data Analytics methodologies (2.33)

1. Exploratory Data Analysis (EDA), which aims to find patterns and relationships in data
2. Confirmatory Data Analysis (CDA), which applies statistical techniques to determine whether
hypotheses about a data set are True or False

Data Analytics can also be separated into

1. Quantitative Data Analysis: This involves analysis of numerical data with quantifiable variables
that can be compared or measured statistically.
2. Qualitative Data Analysis: The qualitative approach is more interpretive - it focuses on
understanding the content of non-numerical data like text, images, audio and video.

11
Application areas of Data Analytics (2.34)
1. Data Analytics initiatives support a wide variety of business uses For example, banks and
credit card companies analyse withdrawal and spending patterns to prevent fraud and identity
theft.
2. E-commerce companies and marketing services providers do click stream analysis to
identify website visitors who are more likely to buy a product or service based on navigation
and page-viewing patterns.
3. Mobile network operators examine customer data to forecast so they can take steps to prevent
defections to business rivals; to boost customer relationship management efforts. Other
companies also engage in CRM analytics to segment customers for marketing campaigns and
equip call centre workers with up-to-date information about callers.
4. Healthcare organizations mine patient data to evaluate the effectiveness of treatments for
cancer and other diseases.

Data Analytics Process (2.34)

1. Data Collection
2. Find and Fix Data Quality Problem
3. Building Analytical Model

More advanced types of Data Analytics (2.33)

1. Data Mining, which involves sorting through large data sets to identify trends, patterns and
relationships.
2. Predictive Analytics, which seeks to predict customer behaviour, equipment failures and other
future events.
3. Machine Learning, an artificial intelligence technique that uses automated algorithms to churn
through data sets more quickly.

process of converting raw data into knowledge (2.34)

Data Information Knowledge Intelligence and vision Intelligent decisions

12
 Chapter – 3 (Information Systems and Its Components)
Hardware (3.5)
 Hardware is the tangible portion of our computer systems; something we can touch and
see i.e. the physical components of technology.
 It basically consists of devices that perform the functions of input, processing, data storage
and output activities of the computer.
 Examples - Computers, keyboards, hard drives, iPads and flash drives etc.

(i) Input Devices:

 Input Devices are devices through which we interact with the systems
 Include devices like - Keyboard for text based input; Mouse, joysticks, light pens
and other pointing devices for position based input; Scanners and Bar Code, MICR
readers, Webcams Stylus/ touch screen for image based input and Microphone for
audio based input.
(ii) Processing Devices:
 Processing devices are used to process data using program instructions, manipulate
functions, perform calculations, and control other hardware devices.
 Examples include Central Processing Unit (CPU), Mother board, Network Card, Sound
Card etc.
 The most common device is CPU which is the actual hardware that interprets and
executes the program (software) instructions and coordinates how all the other
hardware devices work together.
 It is like the brain of the computer which is built on a small flake of silicon containing
the equivalent of several million transistors. We can think of transistors as switches
which could be “ON” or “OFF” i.e. taking a value of 1 or 0.
 It consists of following three functional units:
1. Control Unit (CU): CU controls the flow of data and instruction to and from memory,
interprets the instruction and controls which tasks to execute and when.
2. Arithmetic and Logical Unit (ALU): It performs arithmetic operations such as
addition, subtraction, multiplication, and logical comparison of numbers: Equal to,
Greater than, Less than, etc.
3. Processor Registers:
 Registers area part of the computer processor which is used to hold a computer
instruction, perform mathematical operation as storage address, or any kind of
data.
 These are high speed, very small memory units within CPU for storing small
amount of data (mostly 32 or 64 bits).
 Registers could be accumulators (for keeping running totals of arithmetic values),
address registers (for storing memory addresses of instructions), storage registers
(for storing the data temporarily) and miscellaneous (used for several functions for
general purpose).

1
(iii) Data Storage Devices (3.6)
(a) Primary Memory/Main Memory:
 Also known as Main Memory or Internal Memory, it is directly accessed by the
processor using data bus.
 It is volatile or non- volatile in nature and being small in storage capacity, hence
cannot be used to store data on a permanent basis.
 Primary memory is mainly of two types – Random Access Memory (RAM) and
Read Only Memory (ROM)

Difference Between RAM and ROM (3.6)

1.Data Retention 2.Persistence 3.Information Access 4.Storage 5.Impact 6.Cost
7.Speed 8.Capacity

Cache memory: (3.7)

 To bridge the huge differences of speed between the Registers and Primary memory,
the Cache Memory is introduced.
 Cache memory is a smaller, extremely fast memory type built into a computer’s
Central Processing Unit (CPU) and that acts as a buffer between RAM and the
CPU.
 Cache Memory stores copies of the data from the most frequently used main memory
locations so that CPU can access it more rapidly than main memory.

Virtual Memory ( 3 . 1 0 )
 Virtual Memory is an imaginary memory area supported by some operating
systems (for example, Windows) that combines computer’s RAM with temporary
space on the hard disk.
 If a computer lacks in required size of RAM needed to run a program or
operation, Windows uses virtual memory to move data from RAM to a space called
a paging file.
 Moving data to and from the paging file frees up RAM to complete its work. Thus,
Virtual memory is an allocation of hard disk space to help RAM.

(b) Secondary Memory: (3.7)

 Secondary memory devices are non-volatile.
 Secondary memory have greater capacity (they are available in large size), greater
economy (the cost of these is lesser compared to register and RAM) and slow speed
(slower in speed compared to registers or primary storage).
 Examples - include Hard disk, Pen drive, memory card etc.

differences between Primary Memory and Secondary Memory (RAM & Hard
Disk) (3.8)
1. Basic 2. Data 3.Volatility 4.Formation 5.Access Speed 6.Access 7.Size
8.Expense 9.Memory

2
(iv) Output Devices: (3.8)
 Computer systems provide output to decision makers at all levels in an enterprise to
solve business problems.
 The desired output may be in visual, audio or digital forms.
 Output devices are devices through which system responds.
 Visual output devices like, a display device visually conveys text, graphics, and video
information.
 Information shown on a display device is called soft copy because the information exists
electronically and is displayed for a temporary period.
 Display devices include CRT monitors, LCD monitors and displays, gas plasma monitors,
and televisions.

Some types of output are textual, graphical, tactile, audio, and video.
 Textual output comprises of characters that are used to create words, sentences,
and paragraphs.
 Graphical outputs are digital representations of non-text information such as
drawings, charts, photographs, and animation.
 Tactile output such as raised line drawings may be useful for some
individuals who are blind.
 Audio output is any music, speech, or any other sound.
 Video output consists of images played back at speeds to provide the appearance
of full motion.
Most common examples of output devices are Speakers, Headphones, Screen (Monitor),
Printer, Voice output communication aid, Automotive navigation system, Video, Plotter,
Wireless etc.

Software (3.9)
 Software is defined as a set of instructions that tell the hardware what to do. Software
is not tangible; it cannot be touched.
 Software is created through the process of programming. When programmers create
software, what they are really doing is simply typing out lists of instructions that tell the
hardware what to execute.
 Without software, the hardware would not be functional.
 Software can be broadly divided into two categories: Operating Systems Software and
Application Software

Operating Systems Software (3.9)

 An Operating System (OS) is a set of computer programs that manages computer hardware
resources and acts as an interface with computer applications programs.
 The operating system is a vital component of the system software in a computer system.
 Operating systems make the hardware usable and manage the hardware by creating an interface
between the hardware and the user.
 Application programs usually require an operating system to function that provides a
convenient environment to users for executing their programs.

3
  Computer hardware with operating system can thus be viewed as an extended machine,
which is more powerful and easy to use.
 Some prominent Operating systems used nowadays are Windows 7, Windows 8, Mac OS,
Linux, UNIX, etc.
 All computing devices run an operating system. For personal computers, the most popular
operating systems are - Microsoft’s Windows, Apple’s OS X, and different versions of Linux.
Smart phones and tablets run operating systems as well, such as Apple’s iOS, Google Android,
Microsoft’s Windows Phone OS, and Research in Motion’s Blackberry OS.

Functions of operating system: (3.10)

(A variety of activities are executed by Operating systems)
1. Memory Management
2. Task Management
3. File M anagement
4. Performing hardware functions (Hardware M anagement)
5. Logical Access Security
6. Networking Capability
7. User Interfaces
8. Hardware Independence

4
Database Management Systems (DBMS): (3.11)
 DBMS may be defined as software that aid in organizing, controlling and using the data
needed by the application programme.
 They provide the facility to create and maintain a well-organized database.
 These systems are primarily used to develop and analyze single-user databases and are not
meant to be shared across a network or Internet, but are instead installed on a device and
work with a single user at a time.
 Various operations that can be performed on these files are as follows:
 Adding new files to database,
 Deleting existing files from database,
 Inserting data in existing files,
 Modifying data in existing files,
 Deleting data in existing files, and
 Retrieving or querying data from existing files.
 Commercially available Data Base Management Systems are Oracle, MySQL, SQL Servers
and DB2 etc. DBMS packages generally provide an interface to view and change the design
of the database, create queries, and develop reports. Microsoft Access and Open Office Base
are examples of personal DBMS.

Hierarchy of database (Phases/Steps of database): (3.11)

 Database: This is a collection of Files/Tables.
 File or Table: This is a collection of Records. It is also referred as Entity.
 Record: This is a collection of Fields.
 Field: This is a collection of Characters, defining a relevant attribute of Table instance.
 Characters: These are a collection of Bits.

Advantages of DBMS : (3.12) Disadvantage of DBMS : (3.13)

1. Cost
( Indian P M Is Unique And Fast) 2. Security
1. Integrity can be maintained
2. Permitting data sharing
3. Minimize data redundancy
4. Improve security
5. User friendly
6. Achieving program/data independence
7. Faster application development
Others
8. Program and file consistency

5
Big Data (3.13)
 A new buzzword that has been capturing the attention of businesses lately is Big Data.
 The term refers to such massively large data sets that conventional database tools do not
have the processing power to analyze them.
 For example, Flipkart must process over millions of customer transactions every hour during
the Billion Day Sale.
 Storing and analyzing that much data is beyond the power of traditional database-management
tools.
 Understanding the best tools and techniques to manage and analyze these large data sets
is a problem that governments and businesses alike are trying to solve.
 This is an interesting space to explore from a career perspective since everything is nothing more
than data. In fact, you and I are nothing more than data points in databases on various companies.
 Some examples of industries that use big data analytics include - the hospitality industry, healthcare
companies, public service agencies, and retail businesses.

Benefits of Big Data Processing (3.13)

1. Ability to process Big Data brings in multiple benefits, such as-
 Businesses can utilize outside intelligence while taking decisions.
 Access to social data from search engines and sites like Facebook, Twitter are enabling
organizations to fine tune their business strategies.
 Early identification of risk to the product/services
2. Improved customer service
 Traditional customer feedback systems are getting replaced by new systems designed with Big
Data technologies
 In these new systems, Big Data and natural language processing technologies are being used to
read and evaluate consumer responses.
3. Better operational efficiency
 Integration of Big Data technologies and data warehouse helps an organization to offload
infrequently accessed data, this leading to better operational efficiency
Process of Data Warehouse (3.14)
The process of extracting data from source systems and bringing it into the data
warehouse is commonly called ETL, which stands for Extraction, Transformation, and
Loading. The process is described below:
 In the first stage, the data is Extracted from one or more of the
organization’s databases. In this stage involves extracting the data from
various sources such as ERP systems used, databases, flat files including plain
text files, Excel spreadsheet etc.
 In the second stage the data so extracted is placed in a temporary area
called Staging Area where it is Transformed like cleansing, sorting,
filtering etc. of the data as per the information requirements.
 The final stage involved the Loading of the data so transformed into a data
warehouse which itself is another database for storage and analysis.
 The information loaded on to the data warehouse could further be used by
different data marts which are nothing but databases pertaining to specific
departmental functions like Sales, Finance, Marketing etc. from where the
information is used for further reporting and analyzes to take informed decision
by the management.

6
Data warehouse should be designed so that it meets the following criteria: (3.14)
1. It uses non-operational data
2. The data is time-variant
3. The data is standardized
There are two primary schools of thought when designing a data warehouse
 The Bottom-Up Approach starts by creating small data warehouses, called data marts, to
solve specific business problems. As these data marts are created, they can be combined into a
larger data warehouse.
 The Top-Down Approach suggests that we should start by creating an enterprise-wide data
warehouse and then, as specific business needs are identified, create smaller data marts from
the data warehouse.

Benefits of data warehouse: (3.15)

1. The process of developing a data warehouse forces an organization to better understand
the data that it is currently collecting and, equally important, what data is not being collected.
2. A data warehouse provides a centralized view of all data being collected across the
enterprise and provides a means for determining data that is inconsistent.
3. Once all data is identified as consistent, an organization can generate one version of the truth.
This is important when the company wants to report consistent statistics about itself, such as
revenue or number of employees.
4. By having a data warehouse, snapshots of data can be taken over time. This creates a
historical record of data, which allows for an analysis of trends.
5. A data warehouse provides tools to combine data, which can provide new information and
analysis.

Data Mining (3.15)

 Data Mining is the process of analysing data to find previously unknown trends,
patterns, and associations to make decisions.
 It involves extracting useful data as per the requirement from a collection of raw
facts.
 To start with, one can use the simplest yet powerful tool, Microsoft Excel for data
mining. Other examples of data mining tools include Oracle Data mining, R-language
etc.
 Generally, data mining is accomplished through automated means against extremely
large data sets, such as a data warehouse.
 An example of data mining includes
 An analysis of sales from a large grocery chain that might determine that milk is
purchased more frequently the day after it rains in cities with a population of less
than 50,000.
 The analysis of the popularity of a particular recharge scheme introduced by the
telecommunication provider among people of a specific age group, gender and the
peak call hours location wise.
 A bank may find that loan applicants whose bank accounts show particular
deposit and withdrawal patterns are not good credit risks.
 A baseball team may find that collegiate baseball players with specific
statistics in hitting, pitching, and fielding make for more successful major league
players.

7
Steps involved in the Data Mining process (3.16)
1. Data Integration
2. Data Selection
3. Data Cleaning
4. Data Transformation
5. Data Mining
6. Pattern Evaluation and Knowledge Presentation
7. Decisions / Use of Discovered Knowledge

8
Chapter – 4 (E-Commerce, M-Commerce and Emerging Technologies)
E-Commerce (4.2)
 “Sale / Purchase of goods / services through electronic mode is e- commerce.”
 This could include the use of technology in the form of Computers, Desktops, Mobile
Applications, etc.
 E-Commerce is the process of doing business electronically. It refers to the use of technology to
enhance the processing of commercial transactions between a company, its customers and its
business partners.
 In e-commerce, the buyers and sellers interact electronically using telecommunication
networks rather than through physical contact or exchange. It is a new way of conducting,
managing, and executing business transactions using computer and telecommunication networks.
 It involves the automation of a variety of Business-To-Business (B2B), Business-To-Consumer
(B2C), Consumer-To-Consumer (C2C) and Consumer-To-Business (C2B) etc. through reliable
and secure connections.
Components of E-Commerce: (4.3)
1. User
2. E- Commerce vendors
1. Suppliers and supply chain management
2. Warehouse operations
3. Shipping and returns
4. E-Commerce catalogue and product display
5. Marketing and loyalty programs
6. Showroom and off line purchase
7. Different ordering method
8. Guarantees
9. Privacy policy
10. Security
3. Technology infrastructure
1. Computers, servers and database
2. Mobile apps
3. Digital library
4. Data interchange
4. Internet/network
5. Web portal
6. Payment gateway

Mobile Apps (4.5)

 Apps, acronym for Mobile Applications, are small piece of software developed specifically
for the operating systems of handheld devices such as mobile phones, PDAs and Tablet
computers.
 Smartphone’s and tablets have become a dominant form of computing, with many more
smartphones being sold than personal computers.
 This means that organizations will have to get smart about developing software on mobile devices in
order to stay relevant.
 These days, most mobile devices run on one of two operating systems: Android or iOS.
 Android is an open-source operating system supported by Google whereas iOS is Apple’s
mobile operating system. There are other mobile Operating systems like - BlackBerry OS,
Windows Mobile, Tizen and FireFox OS.

1
 As organizations consider making their digital presence compatible with mobile devices,
they must decide whether to build a mobile app.
It includes the following: (Functions)
 Mobile store front modules are an integral part of m-commerce apps, where all
commodities and services are categorized and compiled in catalogs for customers to easily
browse through the items on sale and get essential information about the products.
 Mobile ticketing module is an m-commerce app component that is closely linked to
promotional side of commercial business and enables vendors to attract customers by
distributing vouchers, coupons and tickets.
 Mobile advertising and marketing module empowers merchants to leverage m-commerce
channels in order to manage its direct marketing campaigns, which are reported to be
very effective especially when targeted at younger representatives of digital information
consumers.
 Mobile customer support and information module is a point of reference for information
about a particular retailer, its offerings and deals. The news about the company, current
discounts, shop locations and other information is either pushed to users’ m-
commerce apps or can be found in m-commerce app itself.
 Mobile banking is inextricably linked to selling process via m- commerce apps,
because no purchase can be finalized without a payment. There are various options for
executing mobile payments, among which are direct mobile billing, payments via -
SMS, credit card payments through a familiar mobile web interface, and payments at
physical Point of Sale (POS) terminals with Near Field Communication (NFC) technology.

Digital Library (4.7)

 A Digital Library is a special library with a focused collection of digital objects that can
include text, visual material, audio material, video material, stored as electronic
media formats (as opposed to print, microform, or other media), along with means for
organizing, storing, and retrieving the files and media containedin the library collection.
 Digital libraries can vary immensely in size and scope, and can be maintained by
individuals, organizations, or affiliated with established physical library buildings
or institutions, or with academic institutions.
 The digital content may be stored locally, or accessed remotely via computer
networks.
 An electronic library is a type of information retrieval system.
Web portal (4.7)
 This shall provide the interface through which an individual/organization shall perform
e-commerce transactions.
 Web Portal is the application through which user interacts with the e- commerce
vendor. The front end through which user interacts for an e-commerce transaction.
 These web portals can be accessed through desktops/laptops/PDA/hand-held computing
devices/mobiles and now through smart TVs also.
 The sale process starts from the very moment the visitor looks at the Web portal. First
impressions are very important. If the portal has weak design, users create a bad
impression of the business.
 The simplicity and clarity of content on web portal is directly linked to customer
experience of buying a product online. E-commerce vendors put a lot of money and
effort in this aspect. Sophisticated portal design allows the small business to compete on
equal footing with larger and better financed companies.

2
Payment Gateway (4.8)
 In e-commerce, the major proportion of online payments is being performed based
on payment gateway technology.
 Payment gateway represents the way e-commerce/m-commerce vendors collects
their payments.
 It is a system of computer processes that authorizes, verifies, and accepts or declines
credit/debit card transactions on behalf of the merchant through secure Internet
connections.
 The Payment gateway assures seller of receipt of payment from buyer of
goods/services from e-commerce vendors.
 A payment gateway allows a secure connection directly between a website and a bank.
This direct connection between a website and bank facilitates direct placement of
payments on a website and straight deposit into a bank account.
 Payment gateway is an application on an e-commerce website that allows the
website to link the client payment account with the website’s account. A payment
gateway is a server that is dedicated to linking websites and banks so that online credit
card transactions can be completed in real-time.
 PayPal and World Pay are some of the most popular payment gateways.

Work Flow Diagram For E- Commerce (4.8)

Steps of E-Commerce Work Flow Diagram

1. Customers login
2. Product / Service Selection
3. Customer Places Order
4. Payment Gateway
5. Dispatch and Shipping Process
6. Delivery Tracking
7. COD tracking

3
DIGITAL PAYMENTS (4.10)
 Digital Payment is a way of payment which is made through digital modes.
 In digital payments, payer and payee both use digital modes to send and receive money.
 It is also called electronic payment. No hard cash is involved in the digital payments.
 All the transactions in digital payments are completed online. It is an instant and convenient
way to make payments.
 New digital payment platforms such as UPI and IMPS are becoming increasingly popular.
 Using these new platforms, banks have been scaling rapidly. Every Bank is impacted by new
digital disruptions, so new banking services and ways should be adapted to use various
digital channels to interact and provide services to customers.

Different Types of Digital Payments

I. New Methods of Digital Payment (4.10)

1. UPI Apps:
 Unified Payment Interface (UPI) and retail payment banks are changing the very face of
banking in terms of moving most of banking to digital platforms using mobiles and
apps.
 UPI is a system that powers multiple bank accounts (of participating banks), several
banking services features like fund transfer, and merchant payments in a single
mobile application.
 UPI or unified payment interface is a payment mode which is used to make fund
transfers through the mobile app.
 There are too many good UPI apps available such as - BHIM, SBI UPI app, HDFC UPI
app, iMobile, PhonePe app, Google Pay etc.
2. Immediate Payment Service (IMPS):
 It is an instant interbank electronic fund transfer service through mobile phones.
 IMPS is an empathetic tool to transfer money instantly within banks across
India through Mobile, Internet Banking and ATM, which is not only safe but
economical also.
3. Mobile Apps: BHIM (Bharat Interface for Money)
 BHIM is a Mobile App developed by National Payments Corporation of India (NPCI)
based on UPI (Unified Payment Interface).
 It facilitates e-payments directly through banks and supports all Indian banks which
use that platform.
 It is built on the Immediate Payment Service infrastructure.
 Allows the user to instantly transfer money between the bank accounts of any two
parties.
 BHIM works on all mobile devices and enables users to send or receive money to other
UPI payment addresses by scanning - QR code or using account number with Indian
Financial Systems Code (IFSC) code or MMID (Mobile Money Identifier) Code for users
who do not have a UPI-based bank account.

4
4. Mobile Wallets:
 A mobile wallet or e-wallet is a digital version of a physical or real-life wallet,
in which one can add money to purchase various goods and services (both online
and offline) and transfer money with this technology.
 A mobile wallet is a type of virtual wallet service that can be used by
downloading an app on smartphone and registering for the service. It is the
digital version of physical wallet with more functionality. User can keep his/her
money in an E-wallet and use it when needed.
 Mobile Wallets provide a convenient way for a user to make-in-store
payments and can be used that with merchants listed with the mobile wallet
service providers.
 This eliminates the need to use credit/debit cards or remember the CVV
or 4-digit pin. Mobile wallets are frequently used to make payments at physical
shops/stores, recharge phone, online purchases, transfer money, and receive offers,
cash backs, and rewards.
 There are mobile wallets like Paytm, Freecharge, Buddy, Mobikwik, State
bank buddy etc.

5. Aadhar Enabled Payment Service(AEPS):

 AEPS is an Aadhaar based digital payment mode. Customer needs only his or
her Aadhaar number to pay to any merchant.
 AEPS allows bank to bank transactions. It means the money you pay will be
deducted from your account and credited to the payee’s account directly.
 Customers will need to link their AADHAR numbers to their bank accounts.
AEPS once launched can be used at POS terminals also.
 AEPS can be used for all banking transactions such as - balance enquiry, cash
withdrawal, cash deposit, payment transactions, Aadhaar to Aadhaar fund transfers,
etc.
6. Unstructured Supplementary Service Data(USSD):
 A revolutionary idea, where to make payments through mobiles there is neither need
for internet nor any smart phone.
 USSD banking or *99# Banking is a mobile banking based digital payment mode.
 User does not need to have a smartphone or internet connection to use USSD banking.
S/he can easily use it with any normal feature phone.
 USSD banking is as easy as checking of mobile balance. S/he can use this service for many
financial and non-financial operations such as - checking balance, sending money,
changing Mobile Banking Personal Identification number (MPIN) and getting Mobile
Money Identifier (MMID).

7. Mobile Banking:
 It is a service provided by a bank or other financial institution that allows its
customers to conduct different types of financial transactions remotely using a
mobile device such as a mobile phone or tablet.
 It uses software, usually called an app, provided by the banks or financial
institution for the purpose.
 Each Bank provides its own mobile banking App for Android, Windows and
iOS mobile platform(s).

5
 8. Crypto currency:
 Cryptocurrency is a digital currency produced by a public network, rather
than any government, that uses cryptography to ensure that payments are
sent and received safely.
 A cryptocurrency is a medium of exchange wherein records of individual coin
ownership are stored in a computerized database using strong cryptography.
 The first cryptocurrency was Bitcoin which was launched in 2009.
 The other digital currencies such as DigiCash utilizes a Trusted Third Party
approach in which a third party verifies and facilitates the transactions.
 The other cryptocurrencies prevailing in the world today include Litecoin,
Peercoin, Namecoin, as well as Ethereum.
 Cryptocurrency is completely decentralized, which means that there are no
servers involved and no central controlling authority.
 Cryptocurrency is a digital money which does not involve any physical coin. Since it is
all online, the user can transfer cryptocurrency to someone online without going to the
bank.
9. e-Rupi:
 Recently, the Government of India has launched a new mode of cashless and
contactless digital payment named e-Rupi based on UPI systems toensure seamless
transfer of benefits to the citizens in a “leak-proof” manner.
 It is an e-voucher, which will be delivered to beneficiaries in the form of a QR
code and SMS-string-based voucher through which funds will be directly transferred
to their bank account.
 These vouchers are person- and purpose-specific, meaning if they are released by
the government for the purpose of vaccination, for instance, then they can be redeemed
only for that.
 This contactless e-RUPI is easy, safe, and secure as it keeps the details of the
beneficiaries completely confidential.
 The entire transaction process through this voucher is relatively faster and at the
same time reliable, as the required amount is already stored in the voucher. Any
government agency and corporation can generate e-RUPI vouchers via their partner
banks.

II. Traditional Methods of Digital Payment (4.13)

1. Credit Cards:
 A small plastic card issued by a bank, or issuer etc., allowing the holder
to purchase goods or services on credit.
 It contains a unique number linked with an account. It has also a
magnetic strip embedded in it which is used to read credit card via
card readers.
 In this mode of payment, the buyer’s cash flow is not immediately
impacted.
 User of the card makes payment to card issuer at end of billing cycle which
is generally a monthly cycle.
 Credit Card issuer charge customers per transactions / fixed amou n t as
transaction fees.

6
2. Debits Cards:
 Debit card, is also a small plastic card with a unique number linked
with bank account number.
 It is required to have a bank account before getting debit card from
bank.
 It enables cardholder to pay for his/her purchases directly through his/her
account.
 The major difference between debit card and credit card is that in case of
payment through debit card, amount gets deducted from card’s bank
account immediately and there should be sufficient balance in bank
account for the transaction to get completed; whereas in case of credit card
there is no such compulsion.
3. Internet Banking:
 In this mode, the customers log to his / her bank account and makes
payments.
 All public sectors, large private sector banks allow net banking facilities to
their customers.
4. Smart Card:
 Smart card is a prepaid card similar to credit card and debit card in
appearance, but it has a small microprocessor chip embedded in it.
 It has capacity to store customer’s personal information such as
financial facts, private encryption keys, credit card information,
account information, and so on.
 Smart cards combine the advantages of both debit card and credit card
and are available to anyone, regardless of credit ratings or income of
applicant of smart card. Moreover, these are not linked to any bank
account. For this reason, smart card holder is not mandated to have a
bank account.
 It is also used to store money which is reduced as per usage.
 Mondex and Visa Cash cards are examples of smart cards.
 The smart card holder has to load money onto the card by paying cash
or through transfer from his/her bank account. After loading the money
onto the card, the cardholder can use the card to spend money up to the
limit of loaded amount in the same way as using a credit or debit card.
Once the loaded amount is spent, the cardholder may reload money onto
the card.

7
Advantages of digital payments: (4.14) Drawbacks/disadvantages of digital
payments: (4.15)
(Popat Lal is Weak in English, Drawing 1. Difficult for a Non- technical person
and Computer Environment ) 2. The risk of data theft
1. Pay or send money from anywhere 3. Overspending
4. Disputed transactions
2. Less risk 5. Increased business costs
3. Written records 6. The necessity of internet access
4. Easy and convenient
5. Discounts from taxes
6. Competitive advantage to business
7. Environment Friendly

Virtualization (4.15)
 Virtualization means to create a virtual version of a device or resource, such as a
server, storage device, network or even an operating system where the framework divides
the resource into one or more execution environments.
 Virtualization helps in cutting IT expenses, in enhancing security, and also in increasing
operational efficiency.
 Virtualization refers to technologies designed to provide a layer of abstraction between
computer hardware systems and the software running on them. By providing a logical
view of computing resources, rather than a physical view;
 Virtualization allows its’ users to manipulate their systems’ operating systems into thinking
that a group of servers is a single pool of computing resources and Conversely, allows its
users to run multiple operating systems simultaneously on a single machine.

Application areas of virtualization: (4.16) Common types of virtualization: (4.17)

1. Hardware virtualization
(Direct Tax Poor & Problematic Subject ) 2. Network virtualization
1. Disaster recovery 3. Storage virtualization

2. Testing and training

3. Portable application
4. Portable workspace
5. Server consolidation

Grid computing: (4.18)

 Grid Computing is a computer network in which each computer’s resources are
shared with every other computer in the system.
 It is a distributed architecture of large numbers of computers connected to solve
a complex problem.
 In the grid computing model, servers or personal computers run independent
tasks and are loosely linked by the Internet or low-speed networks.
 It is a special kind of distributed computing. In distributed computing, different
computers within the same network share one or more resources.

8
  In the ideal grid computing system, every resource is shared, turning a computer
network into a powerful supercomputer.
 With the right user interface, accessing a grid computing system would look no different
than accessing a local machine’s resources.
 Every authorized computer would have access to enormous processing power and
storage capacity.
 Grid Computing is used for high throughput computing at a lower-cost. It has the
ability to accumulate the power of geographically scattered and heterogeneous
resources to form a cohesive resource for performing higher level computations.

Benefits of Grid computing: (4.19) Types of Resources in Grid computing

(4.21)
(M R Pyare Mohan is Very Reliable 1. Computation
Aadmi ) 2. Storage
3. Communications
1. Making use of underutilized resources 4. Software and Licenses
2. Resource balancing 5. Special equipment, capacities,
architectures, and policies
3. Parallel CPU capacity
4. Management
5. Virtual resources and virtual organizations
for collaboration
6. Reliability
7. Access to additional resources
Application Areas of Grid Computing (4.22) Grid computing security: (4.22)
1. Civil engineers collaborate to do 1. Secured Single Sign-on
experimental research to design, execute, 2. Resource Management
analyze, and validate different models in 3. Data Management
earthquake engineering. 4. Management and Protection of
2. An insurance company mines data from Credentials
partner hospitals for fraud detection. 5. Interoperability with local security
solutions
3. An application service provider offloads
6. Standardization
excess load to a compute cycle provider.
7. Exportability
4. An enterprise configures internal & 8. Support for secure group communication
external resources to support e- Business 9. Support for multiple implementations
workload.
5. Large-scale science and engineering are
done through the interaction of people,
heterogeneous computing resources,
information systems and instruments, all of
which are geographically and
organizationally dispersed.
6. In scientific research, using an entire network of
computers to analyze data.
7. In film industry to give special effects in a
movie.
8. In financial industry to forecast the future of
a particular stock.

9
cloud computing: (4.23)
 “The Cloud” refers to applications, services, and data storage on the Internet.
 These service providers rely on giant server farms and massive storage devices that are
connected via Internet protocols.
 Cloud Computing is the use of these services by individuals and organizations. You probably
already use cloud computing in some forms.
 For example, if you access your e-mail via your web browser, you are using a form of cloud
computing. If you use Google Drive’s applications, you are using cloud computing.

Cloud Computing:
 Cloud Computing, simply means the use of computing resources as a service through networks,
typically the Internet.
 The Internet is commonly visualized as clouds; hence the term “cloud computing” for
computation done through the Internet.
 With Cloud Computing, users can access database resources via the Internet from anywhere,
for as long as they need, without worrying about any maintenance or management of
actual resources.
 Besides these, databases in cloud may be highly dynamic and scalable. In fact, it is a very
independent platform in terms of computing.
 Cloud Computing is both, a combination of software and hardware based computing
resources delivered as a networked service.
 This model of IT enabled services enables anytime access to a shared pool of applications
and resources.
 These applications and resources can be accessed using a simple front-end interface such
as a Web browser, and thus enabling users to access the resources from any client device
including notebooks, desktops and mobile devices.
 The location of physical resources and devices being accessed are typically not known to the
end user. It also provides facilities for users to develop, deploy and manage their applications ‘on
the cloud’, which entails virtualization of resources that maintains and manages itself.

Characteristics of cloud computing: (4.24) Advantage of cloud computing: (4.25)

1. Achieve economies of scale
(Multiplex E P Well Organized, Reliable & 2. Reduce spending on technology infrastructure
3. Globalize the workforce
Wide place) 4. Streamline business process
1. Multi tenancy 5. Reduce capital cost
6. Easy access to information/applications
2. Elasticity and scalability 7. Pervasive accessibility
3. Pay-per-use 8. Backup and Recovery
9. Monitor projects more effectively
4. Workload movement 10. Less personnel training is needed
5. On-demand 11. Minimize maintenance and licensing
software
6. Resiliency 12. Load balancing
7. Wide Range of Network Access 13. Improved flexibility
Capacities

10
Drawbacks of Cloud Computing (4.26)
1. If Internet connection is lost, the link to the cloud and thereby to the data and
applications is lost.
2. Security is a major concern as entire working with data and applications depend on other
cloud vendors or providers.
3. Although Cloud computing supports scalability (ie. quickly scaling up and down
computing resources depending on the need), it does not permit the control on these
resources as these are not owned by the user or customer.
4. Depending on the cloud vendor or provide, customers may have to face restrictions on the
availability of applications, operating systems and infrastructure options.
5. Interoperability (ability of two or more applications that are required to support a business
need to work together by sharing data and other business-related resources) is an issue
wherein all the applications may not reside with a single cloud vendor and two vendors
may have applications that do not cooperate with each other.

Private cloud: (4.26)

 This cloud computing environment resides within the boundaries of an organization and is
used exclusively for the organization’s benefits.
 These are also called Internal Clouds or Corporate Clouds.
 Private Clouds can either be private to the organization and managed by the single
organization (On-Premise Private Cloud) or can be managed by third party (Outsourced
Private Cloud).
 They are built primarily by IT departments within enterprises, who seek to optimize
utilization of infrastructure resources within the enterprise by provisioning the infrastructure
with applications using the concepts of grid and virtualization.

Public cloud: (4.28)

 The public cloud is the cloud infrastructure that is provisioned for open use by the general
public.
 It may be owned, managed, and operated by a business, academic, or government
organizations, or some combination of them.
 Typically, public clouds are administrated by third parties or vendors over the Internet, and
the services are offered on pay-per-use basis.
 These are also called Provider Clouds.
 Public cloud consists of users from all over the world wherein a user can simply purchase
resources on an hourly basis and work with the resources which are available in the cloud
provider’s premises.
 Examples of public clouds are Google, Amazon, etc.

11
Hybrid Cloud: (4.29)
 This is a combination of both at least one private (internal) and at least one public (external)
cloud computing environments - usually, consisting of infrastructure, platforms and applications.
 The usual method of using the hybrid cloud is to have a private cloud initially, and then for
additional resources, the public cloud is used.
 The hybrid cloud can be regarded as a private cloud extended to the public cloud and aims at
utilizing the power of the public cloud by retaining the properties of the private cloud.
 The organization may perform non-critical activities using public clouds while the critical
activities may be performed using private cloud.
 It is typically offered in either of two ways.
 A vendor has a private cloud and forms a partnership with a public cloud provider or
 A public cloud provider forms a partnership/franchise with a vendor that provides
private cloud platforms.

Community Cloud: (4.30)

 The community cloud is the cloud infrastructure that is provisioned for exclusive use by a
specific community of consumers from organizations that have shared concerns (eg.
mission security requirements, policy, and compliance considerations).
 It may be owned, managed, and operated by one or more of the organizations in the
community, a third party or some combination of them, and it may exist on or off premises.
 In this, a private cloud is shared between several organizations.
 This model is suitable for organizations that cannot afford a private cloud and cannot rely
on the public cloud either.

Characteristics of private cloud: (4.27) Characteristics of public cloud: (4.28)

1. Secure 1. Less Secure
2. Central control 2. Affordable
3. Weak service level agreement(SLA) 3. Stringent service level agreement(SLA)
4. Highly scalable
Advantages of private cloud: 5. Highly available
1. Improve average server utilization
2. Provides a high level of security and Advantages of public cloud:
privacy to the user 1. It is widely used in the development,
3. It is small and controlled & maintained by deployment and management at affordable
the organization cost
2. It allows the organization to deliver highly
Limitation of private cloud: scalable and reliable application
1. Organization may have to invest in 3. No need for establishing infrastructure
buying, building and managing the clouds 4. Public clouds can easily be integrated with
independently private clouds
2. Private cloud resources are not as 5. Strict SLA are followed
cost-effective as public clouds and 6. No limit for the number of users
they have weak SLAs.
3. The organizations require more Limitation of public cloud:
skilled and expert employees to manage 1. Security assurance and thereby building
private clouds. trust among the clients is far from desired
because resources are shared publicly
2. Privacy and organizational autonomy are
not possible

12
Characteristics of hybrid cloud: (4.29) Characteristics of community cloud: (4.30)
1. Scalable 1. Collaborative and distributive maintenance
2. Partially secure 2. Partially secure
3. Stringent service level agreement(SLA) 3. Cost effective
4. Complex cloud management
Advantages of community cloud:
Advantages of hybrid cloud: 1. It allows establishing a low cost private
1. Highly scalable and gives the power of cloud
both public and private 2. Collaborative work on the cloud
2. Provide better security then the public 3. Sharing of responsibilities among the
cloud organizations
4. Better security then the public cloud
Limitation of hybrid cloud:
1. Security features are not good as private Limitation of community cloud:
2. Complex to manage 1. Autonomy of the organization is lost
2. Security features are not good as private
3. It is not suitable in the cases where there is
no collaboration

13
Cloud computing service model:
(A) Infrastructure as a Service (IaaS): (4.31)
 IaaS, a hardware-level service, provides computing resources such as - processing
power, memory, storage, and networks for cloud users to run their application on-
demand.
 This allows users to maximize the utilization of computing capacities without
having to own and manage their own resources.
 The end-users or IT architects will use the infrastructure resources in the form of
Virtual machines (VMs) and design virtual infrastructure, network load balancers etc.,
based on their needs.
 The IT architects need not maintain the physical servers as it is maintained by the
service providers.
 Examples of IaaS providers include Amazon Web Services (AWS), Google Compute
Engine, OpenStack and Eucalyptus.

(B) Platform as a Service (PaaS): (4.33)

 PaaS provides the users the ability to develop and deploy an application on the
development platform provided by the service provider.
 In traditional application development, the application will be developed locally and
will be hosted in the central location.
 In stand-alone application development, the application will be developed by
traditional development platforms result in licensing - based software, whereas PaaS
changes the application development from local machine to online.
 For example - Google App Engine, Windows Azure Compute etc.
 PaaS providers provide a pre-built computing platform consisting of - operating
system, programming languages, database, testing tools apart from some build tools,
deployment tools, and software load balancers.
 The software developers can develop and run their software solutions on cloud
platform without incurring cost and complexity of acquiring and managing the
underlying software and hardware.

(C) Software as a Service (SaaS): (4.33)

 SaaS provides ability to the end users to access an application over the Internet that
is hosted and managed by the service provider.
 The end users are exempted from managing or controlling an application the
development platform, and the underlying infrastructure.
 SaaS changes the way the software is delivered to the customers. SaaS provides users
to access large variety of applications over internets that are hosted on service provider’s
infrastructure.
 The main difference between SaaS and PaaS is that PaaS normally represents a
platform for application development, while SaaS provides online applications
that are already developed.
 For example, one can make his/her own word document in Google docs online, s/he
can edit a photo online on pixlr.com so s/he need not install the photo editing software
on his/her system – thus Google is provisioning software as a service.

14
Characteristics of IaaS: (4.31) Issues Related to Cloud Computing (4.35)
1. Web access to the resources 1. Threshold Policy
2. Centralized management 2. Interoperability
3. Elasticity and dynamic scaling 3. Hidden Costs
4. Shared infrastructure 4. Unexpected Behaviour
5. Metered services 5. Security Issues
6. Legal Issues
7. Software Development in Cloud
8. Bugs in Large-Scale Distributed Systems

Mobile Computing (4.36)

 Mobile Computing refers to the technology that allows transmission of data via a computer
without having to be connected to a fixed physical link.
 Mobile voice communication is widely established throughout the world and has had a very rapid
increase in the number of subscribers to the various cellular networks over the last few years.
 An extension of this technology is the ability to send and receive data across these
cellular networks. This is the fundamental principle of mobile computing.
 Mobile data communication has become a very important and rapidly evolving technology as it
allows users to transmit data from remote locations to other remote or fixed locations.
 This proves to be the solution of the biggest problem of business people on the move
i.e. mobility.

Components of mobile computing: (4.37) Limitation of mobile computing: (4.39)

1. Mobile communication 1. Insufficient bandwidth
2. Mobile hardware 2. Security standards
3. Mobile software 3. Power consumption
4. Transmission interferences
5. Potential health hazards
6. Human interface with device
Benefits of Mobile Computing (4.38)
1. Mobile computing has enabled users to work from anywhere as long as they are connected to
a network. Employees can access the organization’s database from remote locations. A user
can work without being in a fixed position. This leads to great flexibility in working - for
example, enabling home working, or working while travelling.
2. Mobile computing has reduced the travelling time from different locations or to the office
and back. Employees of a company can now access all the important documents and files over
a secure channel or portal and work as if they were on their computer.
3. Employees’ productivity has been enhanced by the fact that a worker can simply work
efficiently and effectively from which ever location they see comfortable and suitable.
Users are able to work with comfortable environments. It enables mobile sales personnel to
update work order status in real-time, facilitating excellent communication.
4. Mobile computing enables the organization to improve the services offered to its
customers. For example, by using a wireless payment terminal the customers in a restaurant
can pay for their meal without leaving their table.
5. Increased information flow enables in improving management effectiveness.
6. Mobile computing facilitates excellent communication.
7. It provides mobile workforce with remote access to work order details, such as - work order
location, contact information, required completion date, asset history relevant warranties/service
contracts.

15
Working of Mobile Computing (4.38)
 The user enters or access data using the application on hand-held computing device.
 Using one of several connecting technologies, the new data are transmitted from hand-
held to site’s information system where files are updated and the new data are accessible to
other system user.
 Now both systems (hand-held and site’s computer) have the same information and are
in sync.
 The process work the same way starting from the other direction.

Bring Your Own Device (BYOD) (4.40)

 BYOD (Bring Your Own Device) refers to business policy that allows employees to use
their preferred computing devices, like smart phones and laptops for business
purposes.
 It means employees are welcome to use personal devices (laptops, smart phones, tablets
etc.) to connect to the corporate network to access information and application.
 The BYOD policy has rendered the workspaces flexible, empowering employees to be
mobile and giving them the right to work beyond their required hours.
 The continuous influx of readily improving technological devices has led to the mass
adoption of smart phones, tablets and laptops, challenging the long-standing policy of
working on company-owned devices.
 Though it has led to an increase in employees’ satisfaction but also reduced IT
desktop costs for organizations as employees are willing to buy, maintain and update
devices in return for a one-time investment cost to be paid by the organization.

Advantages of BYOD (Bring Your Own Emerging BYOD Threats/Risk: (4.41)

Device): (4.40) 1. Network risk
1. Happy employees 2. Device risk
2. Lower IT budgets 3. Application risk
3. IT reduces support requirement 4. Implementation risk
4. Early adoption of new technology
5. Increased employee efficiency

Internet of things (IoT): (4.42)

 The Internet of Things (IoT) is a system of interrelated computing devices, mechanical
and digital machines, objects, animals or people that are provided with unique
identifiers and the ability to transfer data over a network without requiring human-to-
human or human-to- computer interaction.
 Embedded with electronics, Internet connectivity, and other forms of hardware (such as
sensors), these devices can communicate and interact with others over the Internet, and they
can be remotely monitored and controlled.
 The goal of this interconnection is to make all these devices to communicate with each
other and therefore, be more intelligent and independent.
 One of the characteristics of IoT devices is that they are able to produce large amounts
of data. This data can be particularly used in applications such as Artificial
Intelligence and Machine Learning.

16
 For example:
(i) Washing machines with Wi-Fi networking capabilities can connect themselves to home
Wi-Fi. Once these machines are so connected, they can be controlled through machine
manufacturer mobile APP from anywhere in the world.
(ii) India’s living legend of cricket appearing in an Advertisement for water purifier informs
that, the water purifier is Wi-Fi enabled. When the purifying agents deplete in the
machine, it connects to home Wi-Fi and informs the service agents of the company.

Risk: (4.43)
1. Risk to product manufacturer
2. Risk to user of these products
3. Technology risk
4. Environmental risk due to technology

Applications of Internet of things (IoT) (4.42)

1. All home appliances to be connected and that shall create a virtual home.
 Home owners can keep track of all activities in house through their hand-held devices
 Home security CCTV is also monitored through hand held devices
2. Office machines shall be connected through net.
 Human resource managers shall be able to see how many people have had a cup of coffee from
vending machine and how many are present.
 How many printouts are being generated through office printer?
3. Governments can keep track of resource utilizations / extra support needed.
 Under SWACHH mission government can tag all dustbins with IOT sensors
4. As a research study, individuals have got themselves implanted with electronic chips in their bodies.
This chip allows him / her to connect to home / office Wi-Fi. Once connected person can enter home /
office and perform designated function. This chip becomes individual’s authentication token.

17
 Chapter – 5 (Core Banking System (CBS))
Core banking services (5.4)
1. Acceptance of deposit
2. Granting of advances
3. Remittances
 Demand drafts (DD)
 Mail Transfer (MT)
 Electronic Funds Transfer (EFT)
 Real Time Gross Settlement (RTGS)
 National Electronic Funds Transfer (NEFT)
 Immediate Payment Service (IMPS)
4. Collection
5. Clearing
 ECS Credit
 ECS Debit
6. Letters of credit and guarantees
7. Credit card
8. Debit card

Overview of Core Banking Systems (CBS)

The characteristics of CBS: (5.8)

1. There is a common database in a central server located at a Data Center, which gives a
consolidated view of the bank’s operations.
2. Branches function as delivery channels providing services to its customers.
3. CBS is centralized Banking Application software that has several components which have
been designed to meet the demands of the banking industry.
4. CBS is supported by advanced technology infrastructure and has high standards of
business functionality.
5. Core Banking Solution brings significant benefits such as a customer is a customer of
the bank and not only of the branch.
6. CBS is modular in structure and is capable of being implemented in stages as per
requirements of the bank.
7. A CBS software also enables integration of all third-party applications, including in-house
banking software, to facilitate simple and complex business processes.

Example of CBS software (5.8)

• Finacle: Core banking software suite developed by Infosys that provides universal
banking functionality covering all modules for banks covering all banking services.
• FinnOne: Web-based global banking product designed to support banks and financial
solution companies in dealing with assets, liabilities, core financial accounting and
customer service.
• Flexcube: It is an automated core banking software developed by Oracle Financial
services is a Comprehensive, integrated, interoperable, and modular solution that
enables banks to manage evolving customer expectations.

1
• BaNCS: A customer-centric business model which offers simplified operations
comprising loans, deposits, wealth management, digital channels and risk and
compliance components.
• BankMate: A full-scale Banking solution which is a scalable, integrated e- banking
systems that meets the deployment requirements in traditional and non-traditional
banking environments. It enables communication through any touch point to provide
full access to provide complete range of banking services with anytime, anywhere
paradigm.

Technology Components of CBS (5.9)

1. Database Environment
2. Application environment
3. Cyber Security
 Network Security and Secure Configuration
 Application Security
4. Data Centre and Disaster Recovery Centre
5. Online Transaction monitoring for fraud risk management

Some key aspects in-built into architecture of a CBS are as follows (5.12)

(Indian Currency Release by Reservebank)

1. Information flow: This facilitates information flow within the bank andimproves
the speed and accuracy of decision-making. It deploys systems that streamline
integration and unite corporate information to create a comprehensive analytical
infrastructure. It ensures various interfaces like payment channels, ATM,
mobile/internet banking, Point of Sale (PoS) capability are readily available.

2. Customer centric: Through a holistic core banking architecture, this enables banks
to target customers with the right offers at the right time with the right channel to
increase profitability.

3. Regulatory compliance: This holds the compliance in case bank is complex and
expensive. CBS has built-in and regularly updated regulatory platform which
will ensure compliance by providing periodic regulatory and compliance reports
required for the day to day operations of the bank..

4. Resource optimization: This optimizes utilization of information and

resources of banks and lowers costs through improved asset reusability, faster
turnaround times, faster processing and increased accuracy.

2
Risk associated with CBS (5.12)
1. Operational Risk
2. Credit Risk
3. Market Risk
4. Strategic Risk

Components of operational risk (5.12)

1. Transaction Processing Risk
2. Information Security Risk
3. Legal Risk
4. Compliance Risk
5. People Risk
IT Risk (5.13) Information Security (5.14)
(Some of the common IT risks related to CBS) (Information security is comprised of the
1. Ownership of data/process following sub-processes)
2. Authorization process 1. Information Security Policies, Procedures
3. Authentication procedures and practices
4. Several software interface across diverse 2. User Security Administration
networks 3. Application Security
5. Maintaining response time 4. Database Security
6. User Identity management 5. Operating System Security
7. Access control 6. Network Security
8. Incident handling procedures 7. Physical Security
9. Change management
Sample Listing of Risks and Controls Related to
Information Security (Table - 1 (5.14))
 Risk & Controls around the CASA Process (Table - 2 (5.17))
 Risks and Controls around the Credit Card Process (Table - 3 (5.20))
 Risk & Controls around the Mortgage Process (Table - 4 (5.23))
 Risk & Controls around the Treasury Process (Table - 5 (5.25))
 Risk & Controls in the Loans and Advances Process (Table - 6 (5.30))

Types of Mortgage Loan (5.21)

• Home Loan: This is a traditional mortgage where customer has an option of selecting fixed or
variable rate of interest and is provided for the purchase of property.
• Top Up Loan: Here the customer already has an existing loan and is applying for additional
amount either for refurbishment or renovation of the house
• Loans for Under Construction Property: In case of under construction properties the loan is
disbursed in tranches / parts as per construction plan.
Money Laundering (5.30)
 Money Laundering is the process by which the proceeds of the crime and the true ownership
of those proceeds are concealed or made opaque so that the proceeds appear to come
from a legitimate source.
 The objective in money laundering is to conceal the existence, illegal source, or illegal
application of income to make it appear legitimate.
 Money laundering is commonly used by criminals to make ‘dirty’ money appear ‘clean’ or the
profits of criminal activities are made to appear legitimate.

3
Stages of Money Laundering (5.31)
(IPL)
1. Placement
2. Layering
3. Integration