Aug 02 2009
ICT in Banking
Banks have made extensive use of ICT for many years:
- Magnetic Ink Character Recognition (MICR)
- Bankers’ Automated Clearing Services (BACS)
- Automated Teller Machines (ATM)
- Electronic Funds Transfer at Point of Sale (EFTPOS)
- Electronic Funds Transfer (EFT)
Smart Cards
We will look at each of these in turn:
MICR:
These are the strange looking numbers at the bottom of a cheque. They are written in a special magnetic ink, and have the advantage that they can be read by a reader connected to a computer, or by a person. One the cheque is written the bank sort code, the account number, the cheque number. When the cheque is being cleared, the cheque amount is also written.
BACS
The Bankers Automated Clearing Services have used computers to carry out most financial transactions between banks. These include:
- clearing cheques
- paying in salaries
- payment of standing orders or direct debits
The BACS does its processing by batch processing, in which all transactions from the previous day are processed at one time. The processed data is passed between banks on magnetic tapes. Logs are kept of all the transactions. Banks were among the first organisations to use mainframe computers. Many of these are still at work today, as they are very good at this routine number-crunching. It still takes up to a week for a cheque to clear.
Read more about Batch Processing here.
ATM
Automatic teller machines are familiar to most bank customers. They insert a card in the wall, type in a PIN number and, hey presto!, out comes the money.
They are connected to the bank via telephone lines and pass the details of each transaction to a transaction file. This is updated at the end of the day to debit the customers’ bank accounts with the appropriate sums of money. The ATM allows the customer to:
- Get cash out
- Find out the balance in their account
- Change their Personal Identification Number (PIN)
- Request a statement.
Putting money into the account still requires handing it over to a cashier. Lloyds Bank have a system called Creditpoint where the customer deposits money in a special envelope. It is, in effect, a posting box; all the subsequent cash handling operations are manual.
For the customer, the ATM:
- is more anonymous.
- provides a 24-hour a day service, seven days a week; ideal for customers who work irregular hours.
- causes fewer queues since the transactions are quicker.
For the bank the ATM:
- frees up staff from performing routine transactions so that more profitable sales-orientated work can be done.
- reduces the number of staff, since the computer does the work.
- provides a continuous service outside normal hours.
- prevents customers withdrawing money that is not in the account.
EFTPOS
Electronic Funds Transfer at Point of Sale. You will have seen these devices at the checkouts of many shops:
The cashier swipes the card through and the transaction is logged so that funds will be transferred from the customer’s account to the retailer’s account. Although in theory it would be possible for the transfer to be made on the spot, in fact the transaction is carried out when all the other transactions are updated later on in the day. Transactions made after about 16.00 are carried out the next day. The picture here shows the general scheme to ensure security:
To prevent fraud, SMART cards are being more widely used, and soon customers will have to put in a PIN number into the machine.
SMART cards
These are cards which have a chip built in. These will soon contain not just the account details of the customer, but also:
- thumb print
- iris pattern
These are unique to the card owner, and will make it much harder for the fraudulent user.
Internet Banking
Many customers now use the internet for their banking. They can access their account to :
- get a balance
- pay bills
- transfer funds
- manage the account
Paying in money is not so easy; cash cannot be stuffed down a phone line. The internet is a playground for hackers and fraudsters. Security on such accounts has to be rigorous.
Click here to read more about Online Banking.
Internet Shopping
To shop on the web you need:
- a computer;
- a web browser (do not use the trade names Internet Explorer or Netscape);
- an internet service provider (ISP);
- a modem. If you are using dial-up, you will need a 56 k modem. If you have broadband, you will have an ADSL modem.
The advantages to the customer are:
- no need to leave house and face the heaving masses in the shopping mall;
- easy to shop around for the best price or value (not necessarily the same, as some so-called good deals may include hidden extras);
- can see a lot of goods and read details about them;
- Payment is easy.
The advantages to the retailer are:
- no need for a large premises to display the goods;
- no wastage due to shoplifting;
- not many staff needed;
- customers can access the store twenty four hours a day, seven days a week;
- retailers can use the net to check competitors’ prices.
The disadvantages are:
- goods cannot be inspected or tried on;
- delivery time can be unacceptably long;
- faulty goods are hard to return;
- possibility of fraudulent trading;
- credit card details could be revealed.
Internet shopping has burgeoned over the last few years. Most major retailers have an on-line shop as well as their normal stores.
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