Unit 5

Innovations in Banking
Plastic Cards:
Plastic cards refer to payment methods executed through cards that are predominantly made of
plastic with metal components. It is a flat, rectangular piece of plastic that typically contains
information about an individual, an account, or an organization. Plastic cards allow people to
make electronic transactions. The users’ financial information is saved securely in these plastic
cards.

Types of Plastic Cards:

1. ATM Cum Debit Card: Debit cards or ATM cards are used to withdraw money.
Besides, it can be used to make online payments by simply swiping it on card machines
or tapping it at retail stores and other places like restaurants, shopping malls, and
others.

2. Credit Card: Credit cards are another kind of plastic money that enables to enjoy credit
card benefits and make transactions without spending money at the moment. A credit
card usually comes with a pre-approved limit and a timeframe for payment. With credit
cards, one can benefit from spending now and paying later.

3. Prepaid Cards: A prepaid card is a type of plastic money that helps to control our
expenses and stick to a monthly budget plan by limiting how much we can spend. The
user has to load the card with a set amount of money and use it to make purchases
accordingly. The funds can be added to these cards by linking the bank account and
visiting the card provider’s website.

4. Forex Cards: Forex cards are mostly used by overseas travellers for international
payments. More than one currency can be added to these types of cards which has a
validity of approximately five years. It allows to avoid the currency exchange hassle.
Desired amount and currency can be added to it while travelling.

5. Gift Cards: Gift cards are preloaded with a set amount of money and can be used for
payments at certain stores or services. They are commonly given as gifts or rewards.

6. Membership Cards: Many organizations provide plastic membership cards to their

members, which offer access to various benefits, discounts, or services within the
organization.

Advantages of Plastic Cards:

1. Convenience:
Plastic cards reduce the use of traditional payment modes and allows hassle-free
payments. Easy to carry these cards.

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Vanishree Y P.A First Grade College, Nadupadavu, Mangalore
 2. Security:
With the use of plastic money, there is no threat of money being stolen or lost. It comes
with a specific EVM number and chip, with double authentication for better security.

3. Global Acceptance:
Using plastic money, including a Forex card, there is no geographical limitation. Unlike
traditional cash, plastic money allows to spend money anywhere in the world without
worrying about currency exchange.

4. Rewards and Benefits:

With plastic payments, there are several benefits, given by credit card providers. While
doing online shopping, by swiping the card, returns, discounts and other benefits are
available.

5. Record Keeping:
The issuing entity keeps a detailed record of all our transactions, which can be easily
available online using a specific password ID. One need not keep a written record of
withdrawals and expenditures.

Meaning of ATM and ATM Based Services:

ATM Means Automated Teller Machine. It is another mode of electronic fund transfer system.
ATMS are electronic machines which have a label on them, indicating the name of the bank
owning it. The machines are operated by customers themselves to complete their financial
transactions. The customer uses debit / card magnetically coded, which can be read by the
machine. Personal Identification (PIN) number will be given to card holders, which they have
to enter in the machine at the time of carrying out the transaction.

ATM based Services:

1. Cash Withdrawal: The main purpose of ATMs is to enable customers to withdraw
cash from their bank accounts. By using their ATM or debit cards, customers can access
funds from their savings or checking accounts.

2. Balance Inquiry: ATMs provide customers with the option to check their account
balances. This feature allows users to review their balances before conducting
transactions or making financial decisions.

3. Fund Transfer: customers can transfer money from their checking account to their
savings account or vice versa.

4. Pin Change: Customers can change the PIN (Personal Identification Number) of their
ATM cards through ATM for security purposes.

5. Mini Statement: ATMs offer the option to request a mini statement, providing a
summary of recent transactions and account balances.

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 6. Cash Deposits: Certain ATMs allow users to deposit cash directly into their accounts,
making it convenient for individuals to add funds outside of standard banking hours.

7. Cheque Deposit: Advanced ATMs are equipped to accept check deposits. Customers
can insert checks, and the machine will scan and process them for deposit.

8. Utility Bill Payments: Utility bills, credit card payments and other payments can be
made in some ATMs from their accounts.

9. Mobile and DTH Recharge: Prepaid mobile and DTH recharge can be done through
ATMs from their accounts.

10. Investing in Term Deposit and Mutual Funds: Some banks allow to open a Fixed
Deposit account through ATMs.

11. Currency Conversion: Currency conversion services are also offered by ATMs in
international locations. Travellers can withdraw local currency equivalent to their home
currency.

Role of Artificial Intelligence in Banks:

Artificial Intelligence is an increasingly important technology for the banking sector. When
used as a tool to power internal operations and customer-facing applications, it can help banks
improve customer service fraud detection and money and investment management. The advent
of AI technologies has made digital transformation in banking sector.
AI helps customers enhance their decision-making about financial matters. AI technology help
them better manage their money.

Benefits of AI in Banking:
• Enhanced cybersecurity and fraud detection: Cyber attackers increasingly use AI
to create more sophisticated ways to defraud financial institutions. As a result, those
financial institutions need to use AI algorithms to protect their employees from cyber
security threats in real-time, while creating tools to help customers avoid the same
tricks.

• Enhanced APIs: Banking operations increasingly depend on the use of application

programming interfaces (APIs) to enable customers to track their money on various
applications. AI enhances API usage by enabling more security measures and
automating repetitive tasks, making them more powerful.

• Embeddable Banking: Embeddable banking is expected to grow as a service,

especially as AI helps retailers and other companies collect and analyse data about
potential market opportunities, predict creditworthiness, and better personalize services
to customers.

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 • More intelligent customer tools: Banks can provide better customer service through
AI generated tools. AI-powered chatbots and virtual assistants can enhance customer
support, helping customers solve small problems on their own.

• New markets and opportunities: AI helps banks to have better insights into their
customers and can better estimate which customers are a churn risk. AI-driven
predictive analytics can identify new areas of growth for their business and their
customers. For example, banks can analyse their customers’ habits, such as how often
they log in or deposit money.

• Smarter credit card and credit scoring: AI algorithms and machine learning can
help financial institutions approve or deny credit cards, credit increases and other
customer requests at fast speeds.

Internet Banking:
Internet banking is also referred to as On-line banking and Net banking. Financial transactions
are conducted through internet. Online banking offers customers almost every service
traditionally available through a local branch including deposits, transfers, and online bill
payments.
It is also known as ‘Web Banking’ because banks set up a web page to give information about
its products and services. It discharges functions such as:
i. Information services
ii. Communication services
iii. Transactional Services.
The services through internet banking are:
a. E-tax payment
b. Online trading of shares
c. Online remittance of money
d. Access the account to check balance
e. Railway reservation
f. Application of loan
g. Transfer of funds from one customer’s account to other etc.

Advantages of Internet Banking:

1. Basic banking services are delivered at low cost.
2. Reduction in labour cost for banks in branches to handle cash.
3. Quick services are provided to customers which increased the number of satisfied on
line customers.
Disadvantages of Internet Banking:
1. Consumers are worried about security aspects.

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 2. Many consumers are not aware of various banking services rendered on line.
3. Personal contact between banker and customer is not possible in internet banking.

E Banking Services in Banking:

E-banking is a term used to indicate a process through which a customer is allowed to carry
out, personal or commercial banking transactions using electronic and telecommunication
network.
E-banking covers facilities such as – fund transfer, checking account statements, utility bill
payments, opening of bank account, locating nearest ATM, obtain information on financial
products and services, applying for loans, etc. using a personal computer, smartphone, laptop
or personal digital assistant.

E Banking Services:
The range of services covered under E-banking are:
1. Internet Banking: A banking facility provided to the customers through which the
customers are able to perform a number of monetary and non-monetary transactions,
using the internet, through the bank’s website or application.
2. Mobile Banking: Almost all the banks have designed their mobile applications with
which customers can perform transactions at their fingertips. For this, four things are
required – a smartphone, internet, mobile application, and mobile banking service
enabled in bank account.
3. ATM: Automated ATM is not just a machine to withdraw cash as and when required,
but it also allows to check our account status, transfer fund, deposit fund, change mobile
number, change Debit Card PIN, i.e. Personal Identification Number.
4. Debit Card: Debit cards are used in our day-to-day life so as to perform end number
of transactions. Debit cards are linked to the customer’s bank account and so the
customer only needs to swipe the card, in order to make payment at Point of Sale (POS)
outlets, online shopping, ATM withdrawal. In this way, the amount is deducted from
the customer’s account directly.
5. Credit Card: Just like a debit card, a credit card is also a payment card which the banks
issue to the customers on their request, after checking their credit score and history. It
enables the cardholder to borrow funds up to the pre-approved limit and make payment.
The limit is granted by the banks which issue the card.
6. Point of Sale (POS): Points of sale system refers to the point, in terms of date, time
and place (retail outlet) where the customer makes a payment, using a plastic card, for
the purchase made or services received.
7. Electronic Data Interchange (EDI): EDI is a new mode of communicating
information between businesses electronically using a standardized format.
8. Electronic Fund Transfer (EFT): When money is transferred electronically from one
bank to another, it is called as electronic fund transfer. It covers direct debit, direct
deposits, wire transfers, NEFT, RTGS, IMPS, etc.

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E-Wallet and Application Based Payments:
E-Wallet is a digital or electronic method of making payments for various types of payment to
be made by a person. It is a type of electronic card which is used for transactions made online.
Either a computer or a smart pone can be used to make payment.
Digital wallets are online payment applications that securely store virtual versions of your debit
and credit cards. They eliminate the need to enter card details or carry physical cards, allowing
you to make payments conveniently.
Types of E Wallets:
1. Open Wallet: Financial institutions like banks issue open wallet. This wallet can be
used to make transactions with the list of merchants in agreement with the issuer of
wallet. For eg: PayZapp wallet from HDFC.

2. Closed Wallet: This type of wallet is developed by a company selling a product or

services and can be used to make transactions only with that company which developed
the wallet. For eg: Book My Show and IRCTC e Wallet.

3. Semi Closed Wallet: These wallets allow users to make transactions with merchants
from a specific list and specific locations. The user can use these types of wallets to
make online and offline transactions with restricted companies. For eg: Paytm, Amazon
Pay, Phone Pay, Mobikwik wallet.

BHIM App:
Bharath Interface for Money i.e BHIM App is named after Bhim Rao Ambedkar. BHIM is
based on UPI. It is an initiative to enable fast, secure, reliable, cashless payments through
mobile phones. It can be used on all mobile devices. It is available in 13 languages.

Unified Payments Interface (UPI):

Unified Payment Interface is a platform that was formed by the National Payments Corporation
of India (NPCI) under the guidelines of the RBI. It helps in the transfer of money between bank
accounts linked with the mobile number. With the UPI App, one can connect the app with the
account where they have linked their mobile number. The transfer of money is done on a real-
time basis, so instead of IFSC Code, a Virtual Payment Address (VPA) is needed.
UPI payment Apps in India are as follows:
Google Pay, Phone Pay, Paytm, Mobikwik, BHIM UPI, Axis Pay, CRED, Amazon Pay, Tata
Neu, SBI Pay etc.

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Aadhaar Enabled Payment System (AEPS):
AEPS is a secure and convenient payment mechanism which allows individuals to use their
Aadhaar number and biometric authentication to access various banking services, including
cash withdrawals, balance enquiries, fund transfer and more.

Blockchain:
Blockchain technology can be best described as a decentralized, transparent, and secure digital
ledger that records transactions across multiple computers. It is a distributed database that
maintains a continuously growing list of records, or blocks, which are linked together and
secured using cryptographic algorithms.

Blockchain in Banking:
The traditional banking industry has long faced significant challenges, including inefficiency,
limited transparency, high operational costs, and security vulnerabilities. Banks have been
heavily dependent on manual processes, which often lead to delays, errors, and the need for
costly intermediaries.
Blockchain technology eliminates the need for intermediaries in banking, reduce costs and
enhance security. It reduces the risk of cyber-attacks and protect sensitive customer data.

Features of Blockchain:
1. Data immutability: Blockchain ensures that no data is corrupted. Every node on the
system is a copy of the ledger. So, to alter any data, there must be a unanimous
agreement of every node. Hence blockchain is secure and transparent.

2. Decentralized: Blockchain technology is not controlled by any authority or

government or a single or group of individuals. It is a group of nodes that manage the
whole transaction.

3. Single Source of Truth: In blockchain, there is only one distributed ledger. So, to
know, who owns what, or to study a particular transaction, you only need to go to one
place.

4. Transparency: Every transaction, be it tangible or intangible, can be traced from the

start to the finish with blockchain.

5. Consensus algorithm: For a transaction to be accepted and recorded on the blockchain,

all the participants or nodes must agree to follow the same rules.

6. Anonymous: Though every transaction is transparent and open to the public, the actual
persons are kept anonymous through the addresses.

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Vanishree Y P.A First Grade College, Nadupadavu, Mangalore