What is E Banking? Features, Types, Electronic Fund Management

What is E Banking?

The term “Electronic Banking” or “Internet banking” is defined as a remote banking service provided by the authorized banks or their representatives through devices operated either under the bank’s direct control or management or under the outsourcing agreement.

In other words, e banking is an umbrella term for the process by which a customer may perform banking transactions electronically without visiting a branch and also includes the systems that enable customers of banks, individuals or businesses, to access accounts, transact business, or obtain information on financial products and services through a public or private network, including the Internet.

Electronic banking, also known as electronic funds transfer (EFT), is simply the use of electronic means to transfer funds directly from one account to another, rather than by cheque or cash. You can use electronic funds transfer to:

  1. Have your paycheck deposited directly into your bank or credit union checking account.

  2. Withdraw money from your checking account from an ATM machine with a personal identification number (PIN), at your convenience, day or night.

  3. Instruct your bank or credit union to automatically pay certain monthly bills from your accounts, such as your auto loan or your mortgage payment.

  4. Have the bank or credit union transfer funds each month from your checking account to your mutual fund account.

  5. Have your government social security benefits check or your tax refund deposited directly into your checking account.

  6. Buy groceries, gasoline and other purchases at the point-of-sale, using a check card rather than cash, credit or a personal check.

  7. Use a smart card with a prepaid amount of money embedded in it for use instead of cash at a pay phone, expressway road toll, or on college campuses at the library’s photocopy machine or bookstores.

  8. Use your computer and personal finance software to coordinate your total personal financial management process, integrating data and activities related to your income, spending, saving, investing, recordkeeping, bill-paying and taxes, along with basic financial analysis and decision making.

Features of E Banking

These are features of e banking:

A bank customer can perform non-transactional tasks through online banking by:

  1. Viewing account balances.
  2. Viewing last transactions.
  3. Downloading bank statement.
  4. Viewing images of cheques paid.
  5. Requesting for the issuance of a new cheque book.
  6. Downloading periodic account statements.
  7. Downloading applications for mobile banking, electronic banking etc.

Bank customers can perform banking tasks through online banking by:

  1. Transferring funds between the customer’s linked account, national transfers and international transfers.
  2. Purchasing and selling of investments.
  3. Loan applications and transactions, such as repayments of enrolments.
  4. Credit card transactions.
  5. Registering and payments of utility bills.

Besides the above banking task, a bank customer can also perform other tasks such as:

  1. Financial institution administration.
  2. Management of multiple users having varying levels of authority.

Types of E Banking

Following are various types of e banking:

  1. Internet Banking
  2. Automated Teller Machines (ATM)
  3. Tele Banking
  4. Smart Card
  5. Debit Card
  6. E-Cheque

Internet Banking

Internet Banking lets you handle many banking transactions via your personal computer. For instance, you may use your computer to view your account balance, request transfers between accounts, and pay bills electronically.

The Internet banking system and method in which a personal computer is connected by a network service provider directly to a host computer system of a bank such that customer service requests can be processed automatically without the need for intervention by customer service representatives.

The system is capable of distinguishing between those customer service requests which are capable of automated fulfilment and those requests which require handling by a customer service representative. The system is integrated with the host computer system of the bank so that the remote banking customer can access other automated services of the bank.

Automated Teller Machines (ATM)

An unattended electronic machine in a public place, connected to a data system and related equipment and activated by a bank customer to obtain cash withdrawals and other banking services. Also called automatic teller machine, cash machine; Also called money machine.

An automated teller machine or automatic teller machine (ATM) is an electronic computerized telecommunications device that allows a financial institution’s customers to directly use a secure method of communication to access their bank accounts, order or make cash withdrawals (or cash advances using a credit card) and check their account balances without the need for a human bank teller (or cashier in the UK).

Many ATMs also allow people to deposit cash or cheques, transfer money between their bank accounts, top-up their mobile phones’ pre-paid accounts or even buy postage stamps.

On most modern ATMs, the customer identifies him or herself by inserting a plastic card with a magnetic stripe or a plastic smartcard with a chip, that contains his or her account number. The customer then verifies their identity by entering a passcode, often referred to as a PIN (Personal Identification Number) of four or more digits. Upon successful entry of the PIN, the customer may perform a transaction.

Tele Banking

Undertaking a host of banking related services including financial transactions from the convenience of customers chosen place anywhere across the GLOBE and any time of date and night has now been made possible by introducing on-line Telebanking services.

By dialing the given Telebanking number through a landline or a mobile from anywhere, the customer can access his account and by following the user-friendly menu, entire banking can be done through Interactive Voice Response (IVR) system.

With sufficient numbers of hunting lines made available, customer call will hardly fail. The system is bi-lingual and has following facilities offered:

  1. Automatic balance voice out for the default account.
  2. Balance inquiry and transaction inquiry in all.
  3. Inquiry of all term deposit account.
  4. Statement of account by Fax, e-mail or ordinary mail.
  5. Cheque book request.
  6. Stop payment which is on-line and instantaneous.
  7. Transfer of funds with CBS which is automatic and instantaneous.
  8. Utility Bill Payments
  9. Renewal of term deposit which is automatic and instantaneous.
  10. Voice out of last five transactions.

Smart Card

A smart card usually contains an embedded 8-bit microprocessor (a kind of computer chip). The microprocessor is under a contact pad on one side of the card. Think of the microprocessor as replacing the usual magnetic stripe present on a credit card or debit card.

The microprocessor on the smart card is there for security. The host computer and card reader actually “talk” to the microprocessor. The microprocessor enforces access to the data on the card. The chips in these cards are capable of many kinds of transactions.

Debit Card

Debit cards are also known as check cards. Debit cards look like credit cards or ATM (automated teller machine) cards, but operate like cash or a personal check. Debit cards are different from credit cards. While a credit card is a way to “pay later,” a debit card is a way to “pay now.” When you use a debit card, your money is quickly deducted from your checking or savings account.

Debit cards are accepted at many locations, including grocery stores, retail stores, gasoline stations, and restaurants. You can use your card anywhere merchants display your card’s brand name or logo. They offer an alternative to carrying a checkbook or cash.


  • An e-Cheque is the electronic version or representation of paper cheque.
  • The Information and Legal Framework on the E-Cheque is the same as that of the paper cheque’s.
  • It can now be used in place of paper cheques to do any and all remote transactions.

  • An E-cheque work the same way a cheque does, the cheque writer “writes” the e-Cheque using one of many types of electronic devices and “gives” the e-Cheque to the payee electronically. The payee “deposits” the Electronic Cheque receives credit, and the payee’s bank “clears” the e-Cheque to the paying bank. The paying bank validates the e-Cheque and then “charges” the check writer’s account for the check.

Electronic Fund Management

Banking operations over the years and decades have witnessed many changes and have been adopting from time to time new innovations. The technological revolution especially in the Information and Technology front has changed the functioning of banks.

In today’s globalized competitive business environment banks are trying to have the competitive edge by using the latest technology to cut down turnaround time, cut costs and increase efficiency. “e Banking” through many innovative products and services has revolutionized banking operations.

IT revolution has paved way for banks to implement different systems to handle funds management in banks. This methodology is collectively recognized as Electronic Fund Management:

  1. Electronic Clearing System (ECS)
  2. Real Time Gross Settlement (RTGS)
  3. National Electronic Funds Transfer (NEFT)
  4. Indian Financial System Code (IFSC)
  5. Automated Teller Machines (ATMs)
  6. Internet Banking
  7. Core Banking
  8. Data Warehousing
  9. Computerization of Clearing of Cheques

Electronic Clearing System (ECS)

One of the earliest electronic forms of funds transfer is the Electronic Clearing System. ECS is a retail funds transfer system to effect payments (utility bills, dividends, interest, etc) ECS helps corporates, government departments, public sector undertakings, utility service providers to receive and/or pay bulk payments. ECS is divided into ECS (credit) and ECS (debit).

Real Time Gross Settlement (RTGS)

One of the important IT revolutions in Indian Banking Scenario was the implemen- tation of the Real Time Gross Settlement (RTGS) system by the Reserve Bank of India. With the changing scenario from manual environment to electronic mode, banks started to use faster, safer and efficient methods to transfer funds.

RTGS is an electronic payment system, where payment instructions are processed on a ‘con- tinuous’ or ‘REAL TIME’ basis and settled on a ‘GROSS’ or ‘individual’ basis without netting the debits against credits. In India, RBI introduced this system and the system is functioning well. The payments so effected are ‘final’ and ‘irrevo- cable’. The settlement is done in the books of the central bank (RBI).

The RTGS system allows transfer of funds across banks on a real time (immediate) basis. Each participant bank needs to open a dedicated settlement account for putting through its RTGS transactions. Not only does it allow transfer of funds, it also reduces the credit risk. Both customers and banks can transfer funds monies the same day at regular intervals within the banking hours.

National Electronic Funds Transfer (NEFT)

NEFT is a system similar to RTGS with certain differences. RTGS handles big ticket transactions, whereas NEFT handles smaller size transactions. Most branches are using this facility to transfer funds in an efficient manner.

Once the applicant for the transfer of funds furnishes full and correct details (correct account details means correct name of the beneficiary, the correct account number, the branch and bank of the beneficiary, and the correct IFS code, etc.) funds can be transferred to the beneficiary’s account by the remitting bank.

Transfer of funds through NEFT is safe, quick. It reduces the paper work and is cost effective. NEFT is an innovative electronic media for effecting transfer of funds.

Indian Financial System Code (IFSC)

IFSC is an alpha-numeric code that identifies a bank-branch participating in the RTGS/NEFT system. IFSC has 11 digit code and the first four alpha characters represents the bank, the 5th code is 0 (zero), which is reserved for future use and the last six digits are numeric characters represents the branch.

Correct IFSC code is essential for identifying the beneficiary’s branch and bank as destination for funds transfers. E.g. Syndicate Bank Cuffe Parade Branch, Mumbai- SYNB0005087.

Automated Teller Machines (ATMs)

ATMs are used as a channel for cash management of individual customers. ATMs can be accessed by ATM card, debit or credit cards. To have access the customer (the card holder) needs to use his Personal Identification Number (PIN) issued by his/her banker and access password.

ATMs generally used for cash deposit and withdrawals, they can also be used for payment of utility bills, funds transfer thereby ATMs serve as a channel for electronic funds management. Requests for new cheque book and statement of accounts can also be given through ATMs.

White Label ATMs- RBI has vide notifications dated 20th June, 2012, permitted non-banking entities to set up or start ATMs which are called White Label ATMs (WLA). From such ATMs customers of any bank will be able to withdraw money, takeout statement, change PIN etc. These WLAs will not display logo of any bank.

Internet Banking

Internet banking one of the popular e-banking modes has changed the banking op- erations and offer virtual banking services to the clients on 24 x 7 basis. It is also called as convenient banking, since the customer (account holder) can have access to his bank account from anywhere at any time, through the bank’s web site.

The customer is allowed online access to account details and payment and funds trans- fer facilities. Net banking services of a bank can be accessed through a Personal Identification Number (PIN) and access password as in the case of ATMs.

In net banking, the advantage for the bank customer is that funds can be transferred from the client’s bank account to another account with the same bank or another bank through NEFT/RTGS. Another method of funds transfer facility is online payment of taxes.

A bank customer can pay various taxes like income tax, service tax, etc.; Net banking can be used as a channel by the customer to pay the utility bills (elec- tricity bills, telephone bills, etc) on line. Customers can make use of net banking to pay the insurance premiums and similar other payments.

Core Banking

Core Banking Solution (CBS) is the banking software used all over the world to take care of the banking operations and accounting. It provides a centralised plat- form for the entire banking operations. The range of functions of one CBS may, however, be different from the other, but the core characteristic of all CBS is centralised online real time exchange.

CBS Application is installed at a central location to which all branches of the bank are connected through various electronic data communication modes viz., Leased Landline, Very Small Aperture Terminal (VSAT), Internet and Mobile etc.

All op- erations of the bank are conducted online in the real-time environment on the CBS Platform. The transactions get processed at one place irrespective of the location from where it has been initiated. Therefore, the customer is able to operate from any branch regardless of where she maintains her account.

Account holders no longer remain customers only of a branch. They become the customer of the Bank. They are linked to a branch for the purpose of getting personal attention.

Data Warehousing

A Data Warehouse or Enterprise Data Warehouse (DWH/EDW) is a database used for reporting and data analysis. It is a central repository of data which is created by integrating data from one or more separate sources.

DWH store current as well as historical data and are used for creating trending reports for use by senior management. The data stored in the warehouse are uploaded from the operation systems. The main source of data is cleaned, transformed, catalogued and made available for use by the managers for data mining, online analytical processing and decision support.

Computerization of Clearing of Cheques

Over the years Reserve Bank of India as a facilitator has been playing a vital role in the implementation of innovative systems, to enable banks not only to function ef- fectively but also to offer better customer service. RBI is in charge of the clearing house and clearing operations.

It has always taken lead to introduce new systems to speed up clearing process as well to reduce the turnaround time in clearance of funds. Computerization of clearing operations was the first major step initiated by RBI, over the years RBI has been upgrading the system with new changes.

To overcome the increasing volume of cheques through the clearing mechanism, RBI has fully automated the clearing house operations. This is based on the Magnetic Ink Character Recognition technology; RBI upgraded the clearing functions with new set of MICR cheques.

Under this new system, cheques should have MICR code consisting of 9 digits. Each cheque would have the unique 9 digit MICR code along with the cheque number.

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