JAIIB nathans

BANKING: SHORT NOTES ON TECHNOLOGY

BANKING TECHNOLOGY

1. Based on bank computerization the report submitted by the committee in the year 1984 was known as First Rangarajan Committee report on Bank Mechanisation
2. The four major objectives of computerization in banking are to improve customer service,housekeeping,decision making, productivity and profitability.
3. At the regional and head office levels,the purpose of computerization should be to store,analyse and retrieve data.
4. The stand alone computer system is used by only one person at a time.
5. Stand alone systems are best suited for decision making process.
6. Stand alone Systems cannot be used in a multi user environment.
7. Stand alone Systems are capable of handling multimedia,high quality graphics,fax messages.
8. In multi user computer networking, computers are based on the centralized processing concept.
9. In multi user computer networking,systems work on a time sharing basis and are well suited for the development of online applications.
10. In multi user computer networking, the load on the central machine increases with the increase in number of users.
11. Computerisation at the branch level can be used to provide speedy customer service,improve house keeping services,analyse the branch level data for decision making,generation of various reports.
12. Security measures play an important role in branch level computerization because of online banking applications.
13. The generation of audit trails and exceptional transaction reports ensure proper functioning of the computerized systems.
14. Total Branch Automation leads to real time online banking.
15. The independent modules are interlinked to form an integrated system such that changes are effected without a time lag.
16. Using total branch computerization it is possible to provide the single window transaction concept
17. RO/ZO acts in between branches and the head office.
18. RO/ZO exercise effective control over the functioning of the branches including collection of data from them and transmitting the same to head office after amalgamation.
19. The most common tasks performed by RO/ZO are Branch Profile,Inter  branch Reconciliation, Credit Monitoring, Personnel data management etc.
20. The head office of a bank is responsible for bank level planning and control functions,policy decisions.
21. The head office activities divided into different functional areas like operations,planning,personnel,international business,services,etc
22. The branch profle may contain Standing data file(SDF form) and Performance report file (PRF).
23. The computer network that links computers and peripherals within a localized area say,within a building is known as LAN(Local Area Network).
24. LAN will not extend beyond 100 metres. It can be upto a maximum spread of  1 km and the number of devices supported may also vary from 2 to as many as 1000.
25. In LANs each independent system is known as a node.
26. The methods of operation for the transfer of data over networks are called packets switching.
27. Transmission in bus topology is in both directions and is received by all other stations.
28. Advantage of Bus topology is if one station on the LAN fails,it will not affect the rest of the network.
29. In Ring topology,the devices are connected in a loop. Data transmission is possible in one direction only.
30. Disadvantage of Ring topology is the breakdown of any one station on the ring can disable the entire LAN.
31. In a star topology, the central node is often the master. If one node fails it will not affect the network.
32. In technology terms effective communication between two pieces of equipment happens through PROTOCOL
33. Protocols defines message formats and the rules for message exchange.
34. The network protocols depend on the adapters.
35. Some of the commonly used types of adapters are Ethernet and Token Ring.
36. The Token in Token Ring  is actually a special frame passed from node to node.
37. A Multiplexer is used to receive signals from several communication lines and pass on to one communication line and vice versa.
38. In LANS,

• Expensive resources can be shared
• Information stored on the host computer is available to all users of the system.
• Processing load is shared between the various machines.

39. Wide Area Network (WAN) are defined as a large scale computer network spread over a span of sizeable geographic area.
40. In banking sector the WANs are generally used to interconnect branches with the regional offices and RO/ZO offices to head offices.
41. WAN Connectivity can be established by using dial-up network or satellite links or microwave links.
42. Core Banking has a centralized branch computerization model where the branches are connected to a central host,which incorporates branch automation modules and online multiple delivery channels under one roof.
43. The introduction of the ATM(Auto teller  Machine) and the plastic cards has given the banking customers the facility of round the clock (24 hours banking)
44. ATMs are primarily used for performing some of the banking functions such as the withdrawal of cash or the deposit of the cash/cheque by using an ATM card.
45. Migration of the routine transactions to the ATMs frees the bank staff for more productive work.
46. ATMs serve as the crucial touch point for cross selling of the bank’s products.
47. ATMs serve as a media for publicity for the bank.
48. When the ATM is connected to the bank’s database and provides online real time access it is said to be ONLINE.
49. When the ATM is not connected to bank’s database it is said to be OFFLINE
50. When an ATM is not connected to any ATM Network it is said to be STAND ALONE
51. When ATMS are connected to an ATM Network they are said to be NETWORKED
52. Cash Dispenser is a pruned down version of the ATM.
53. IBA(Indian Bank’s Association)  was the first to set up a shared payment network system(SPNS) or SWADHAN network of ATMs of its member banks in Mumbai.
54. The components of ATM are Video Display Monitor,Keypad,Touch screen,Slots.
55. HWAK or The Intelligent Auto teller systems are a special breed of auto teller machines capable of thinking for themselves.
56. In Charge cards the transactions are accumulated it is only charged i.e not debited to the account immediately such cards are called charge cards.
57. In case of credit cards the card holder has the option to pay the entire amount as soon as the account is debited.
58. In debit cards, the funds are immediately taken from the card holder accounts.
59. The smart card unlike any other plastic cards contains an Integrated Circuit ( IC Chip ) installed.
60. Two tyoes of smart cards are memory chip and micro processor cards.
61. The protection for the smart cards is based on the DES(Data Encryption Standard) which is accepted by the ISO.
62. Member cards are exclusively used by members of club or a chain of  hotels.
63. Credit card system inculcates a sense of financial discipline.
64. Credit card system leads to increase in sales because of increased purchase power of the card holder due to unbilled credit available.
65. Credit card system results in systematic accounting to the merchant establishment.
66. Credit card system helps in establishing banking relationship with new customers.
67. In manual mode of acceptance of card merchant has to verify the genuiness of the card from warning bulletin.
68. In Electronic mode of acceptance of card merchant accepts card through Electronic Data Capture machines.
69. The security features of Smart cards are Dynamic Signature verification,Fingerprint verification, Voice recognition systems, Hand geometry,Retinal pattern verification,Vein recognition,Visual recognition.
70. Electronic purse contains space for storage of amount and user data such as address,branch details and transaction history.
71. Corporate Banking allows the customers to operate the account without physically coming to the bank.
72. Using remote banking facility corporate customers can get their current balance,order cheque books,intra and inter bank fund transfers,stop payment instructions,International remittances,Opening LCs.
73. International Remittances can be made through SWIFT(Society for World wide Inter bank Financial Telecommunication)
74. Telebanking services is based on the the voice processing facility available with the bank’s computers through which balance enquiry, fund transfer etc. can be done.
75. Online updates may be defined as the direct linking of an operation or equipment to a computer system so that any stimulus provided by that operation or equipment is immediately accepted by the computer system.
76. Online update is required in foreign exchange transaction and ATM.
77. In batch updates, every day at the end of the banking hours, the computer operators start entering the data of the day’s transactions into the computer and is processed by the computer.
78. Internet banking service is of three types.
79. Basic level services – which disseminate information on different products and services.
80. Simple Transactional Websites – Allows customers to submit their instructions and queries but do not permit any transactions.
81. Fully transactional websites – Permits fund transfers and enquiries
82. Mobile banking has feature like 128 bit encryption and open Internet technology
83. A Cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand.
84. Cheque truncation can be done through MICR data or Image Processing.
85. Cheque Truncation stops flow of cheques through the banking system.
86. Periodical backup of the database is done with the help of microfilm or microfiche that can retain voluminous information.
87. A modem is a conversion device installed in pairs at each end of a telephone line.
88. 3 types of transmission medium – Terrestrial wire pair,coaxial cable and optical fibre.
89. Terrestrial wire pair consists of two insulated copper wires and they are useful for connecting terminals to computers upto a distance of 100 metres.
90. Coaxial cable can carry digital signals at very high rates of 500 mega bits per second.
91. Optical fibre supports data rate of 2 giga bits/sec.
92. Microwave systems use very high frequency radio signals used in telephone systems and television transmissions. The radio waves are modulated to carry information.
93. Communication Satellites contains satellite that is fitted with transmitters and receiving antennas called transponders.
94. Transporters are used to link two or more microwave transmitters or receivers on earth known as work stations.
95. Message switches are used for storing and forwarding data to a large number of terminals over a single communication channel.
96. Multiplexer is a device that enales more than one signal to be sent simultaneously over one physical channel.
97. Front end processor is a dedicated communication systems that intercepts and handles communication activities for the host computer.
98. A simplex transmission is capable of transmitting data in only one direction.
99. Half Duplex transmission allows data movement in both directions but in only one direction at a time.E.g modem.
100. Full Duplex transmission provides simultaneous two way transmission.
101. INFINET (Indian financial network) has been set up at Hyderabad by RBI
102. The hub of VSAT network is owned by RBI and IDRBT(Institute for Development and Research in Banking Technology)
103. Internet is a global network of networks.
104. ISP( Internet service provider ) is established through the interface protocol software. Two protocols available are SLP – Serial line protocol and PPP – Point to point protocol.
105. SWIFT is basically a message transmission system. In India, all nationalized banks are members of SWIFT. Banks are connected to SWIFT regional processor at Mumbai
106. SWIFT assumes financial liability for the accuracy and timely delivery of all validated messages from the point they enter network to the point they leave the network
107. Security in SWIFT is made through Key authentication mechanism,Encryption and Checksum.
108. Banks with Automated clearing systems use Distributed Data processing techniques with a central system acting as the main database server.
109. CHIPS(Clearing house Interbank payment system) – started operating in 1970 run by a New York clearing house for transfer of payments internationally.
110. CHAPS(Clearing House Automated Payment System) – set up in UK provides almost instantaneous service for settlemet of payments and the payments are guaranteed on receipt and cannot be recalled.
111. CHATS(Clearing House Automated Transfer System) provides the inter-bank funds transfer facilities in Hong Kong
112. The Fedwire is a X.25 protocol based packet switched network.
113. Bankwire is the pioneer private sector electronic telecommunication network owned by an association of Banks in USA.
114. The POS system allows payments to be made at the point of sales by the way of EFT.
115. In Role of sending Bank – NEFT System the sending bank branch would prepare the ‘Structural Financial Messaging System’(SFMS) message and sent it to sending service centre.
116. The sending service centre shall transmit the NEFT SFMS message to the NEFT Clearing centre by using the communication network designated by Reserve Bank.
117. The SFMS messages are transmitted to National clearing centre(NCC)
118. In Role of clearing centre – NEFT System NCC will be the data processing NEFT clearing centre.
119. In Role of Receiving Bank – NEFT System the receiving NEFT service centre may use the ‘Straight through Processing Interface’(STPI) available in SFMS and upload these SFMS to give the credits to the beneficiary account centrally.
120. NEFT facilitates an efficient, secure,economical,reliable and expeditious system of funds transfer and clearing in the banking sector through India.
121. RTGS is an electronic payment environment where payment instructions processed on a ‘Continuous’ or ‘Real Time’ basis and settled on a Gross or Individual basis.
122. RTGS Business day divided into four phases – RTGS open phase, IDL Shut phase, IDL Close Phase, RTGS Close phase.
123. MNSB – Multilateral net settlement batch.
124. The digital signature is a key and must be applied in a manner to satisfy the following critical features of any digitally signed electronic message.
125. The validity of the source of an electronic message should be ascertained through the digital signature by verifying the source or the originator of the message and this is called Authentication.
126. The integrity of a message transmitted electronically has to be received intact and should not have been altered in any way during transmission.
127. Cryptography is usually based on the use of algorithmic functions to generate two different but mathematically related keys. Private and public keys.
128. The private key is kept confidential and is used only by the signer to reate didital signature.
129. The public key is used by a relying party to verify the digital signature.
130. • Databases known as data warehouses are designed, wherein data from heterogenous sources is stored to generate critical information for the decision support systems.
     • The Data in Data ware house is integrated and there are no inconsistencies.
     • The data in a Data ware house is non-volatile and time variant.
     • Data Mining is a technique to reveal the strategic information hidden in the data warehouse(s).
     • Data Mining is the process of automatically finding patterns and relations in large databases.
     • Application of Data Warehousing – Loan risk analysis,Credit risk analysis,Stock portfolio creation,Data analysis of the demographic functions,Risk analysis by insurance companies.
     • Cyber banking leading to a cashless society is the direction towards which the the technology is driving the banks today.
     • Electronic Data Interchange(EDI) is the inter-organisational exchange of business documentation,which can be processed by computers.
     • Gateway in India for EDI Services - Videsh Sanchar Nigam Ltd.(VSNL)
     • The credit card network is another EFT system using EDI standards.
     • Electronic data interchange for administration of commerce and transport (EDIFACT) is the universal set of standards and guidelines for communication by EDI.
     • End uses of corporate websites – Dissemination of information,Financial advice,To highlight non-banking activities,A node for commerce,Selling financial products,Gateway to the Internet,Account services.
     • In MIS(Management Information Systems) the availability can be analyzed and turned into meaningful information for managerial decision making.
     • The key element in any MIS is the transformation of data into information.
     • DSS(Decision Support Systems) – helps in predicting the decisions.
     • DSS allows for the creation of simulations under various conditions and help in the management in analyzing situations under different conditions.
     • DSS makes use of complex mathematical models to aid in decision making.
     • Data privacy assumes two significant dimensions-the authority to access data,the authority to use data only for specified purposes.
     
     
     
     
     
     
     • The risks associated in use of IT and the deficiencies in security and controls within the banking procedures may pose a significant threat to the banking operations.
     • The three components software,data and hardware are continuously exposed to computer operators,programmers,customers and even to the public.
     • The risks broadly lead to Incorrect decision making,Interruptions in activities due to loss of data,Violation of privacy,Direct financial loss due to computer frauds.
     • Data is a critical resource, necessary for an organisation’s continuing operations.
     • Peopleware refers to the group of persons directly or indirectly involved in establishing and running the computerized systems.
     • Types of threats
     1. Errors and omissions in data and software
     2. Unauthorised disclosure of confidential information
     3. Computer abuse and mis utilization of bank assets
     4. Frauds
     • Errors in computerized environment can occur at the time of:
     1. System design and process development
     2. Programme maintenance and while carrying out correction procedures.
     3. Data entry at the time of terminal operations.
     • Malicious damage to computer systems can cause an interruption in banking services.
     • Risk of malicious damage to computerized systems can be from disgruntled employees who wish to disrupt the services or from individual with malafide intentions.
     • Special programmes such as utility programmes can be used to make unauthorized changes to computerized records in a way that bypasses the normal control and audit trail facilities built into the computer systems.
     • Corrective controls remove or reduces the effects of errors and irregularities after they have been identified.
     • An audit trail is a chronological record of all events occurring in a system.
     • Accounting audit trail – It maintains a record of processes that update the data and information.
     • Operations audit trail – It maintains a record of attempted or actual consumption of resources within a system
     • Checksum-It is generated to ensure the integrity of data stored in a computer file.It is a number calculated on a basis of certain key data items of the file.
     • Data encryption-is the process of systematic encoding of data before transmission so that an unauthorized person cannot decipher it.
     • In electronic fund transfer systems a control mechanism which applies a message authentication code (MAC) is used to identify changes to a message in transit.It is a secret key applied to selected data items in a part  or whole of the message.
     • The auditors also make use of audit software – Computer aided audit tools and techniques (CATTs) to process data of audit significance.
     • Benefits of IS Audit:
     1. It would identify the risks of exposure to an existing computerized environment.
     2. It would deter people/employees/users from indulging in corruption/manipulation of data,frauds,etc.,as any unlawful activity will be prevented
     • Objectives of IS security policy:
     1. CONFIDENTIALITY : To prevent unauthorized disclosure of information stored or processed on the bank’s information systems.
     2. INTEGRITY : To prevent the accidental or unauthorized deliberate alteration or deletion of information.
     3. AVAILABILITY : To ensure that information is available to authorized persons when required
     • Controls required for IS Security: User id and password,Authorisation,Access control,Alternate authentication control,Integrity,Confidentiality and Non repudiation.
     • Phases of disaster recovery palnning: