Management Of Banking Products & Services PDF

# Management of Banking Products & Services ## Unit III: Management of Banking Products & Services ### 3.0 Objectives After reading this unit, you will be able to: * explain the development and role of new banking products and services; * know what is Bancassurance; * describe the Importance of...

# Management of Banking Products & Services ## Unit III: Management of Banking Products & Services ### 3.0 Objectives After reading this unit, you will be able to: * explain the development and role of new banking products and services; * know what is Bancassurance; * describe the Importance of risk management in banks; * define the Types of Risks; * analysis the impact and management factoring and forfaiting; * understand the Securitization and Credit Cards; * explain the ancillary services: Remittances & SAFE DEPOSIT LOCKERS. ### 3.1 Introduction The banking system in India is significantly different from other Asian nations because of the country's unique geographic, social, and economic characteristics. India has a large population and land size, a diverse culture, and extreme disparities in income, which are marked among its regions. There are high levels of illiteracy among a large percentage of its population but, at the same time, the country has a large reservoir of managerial and technologically advanced talents. Between about 30 and 35 percent of the population resides in metro and urban cities, and the rest is spread in several semi-urban and rural centers. The country's economic policy framework combines socialistic and capitalistic features with a heavy bias towards public sector investment. India has followed the path of growth-led exports rather than the "export-led growth" of other Asian economies, with emphasis on self-reliance through import substitution. These features are reflected in the structure, size, and diversity of the country's banking and financial sector. The banking system has had to serve the goals of economic policies enunciated in successive five-year development plans, particularly concerning equitable income distribution, balanced regional economic growth, and the reduction and elimination of private sector monopolies in trade and industry. In order for the banking industry to serve as an instrument of state policy, it was subjected to various nationalization schemes in different phases (1955, 1969, and 1980). As a result, banking remained internationally isolated (few Indian banks had presence abroad in international financial centers) because of preoccupations with domestic priorities, especially massive branch expansion and attracting more people to the system. Moreover, the sector has been assigned the role of providing support to other economic sectors such as agriculture, small-scale industries, exports, and banking activities in the developed commercial centers (i.e., metro, urban, and a limited number of semi-urban centers). The banking system's international isolation was also due to strict branch licensing controls on foreign banks already operating in the country as well as entry restrictions facing new foreign banks. A criterion of reciprocity is required for any Indian bank to open an office abroad. These features have left the Indian banking sector with weaknesses and strengths. A big challenge facing Indian banks is how, under the current ownership structure, to attain operational efficiency suitable for modern financial intermediation. On the other hand, it has been relatively easy for the public sector banks to recapitalize, given the increases in nonperforming assets (NPAs), as their Government dominated ownership structure has reduced the conflicts of interest that private banks would face. ### 3.2 Development and Role of New Banking Products and Services **Recent Trends and Developments in Banking Sector** Today, we are having a fairly well developed banking system with different classes of banks - public sector banks, foreign banks, private sector banks, regional rural banks, and co-operative banks. The Reserve Bank of India (RBI) is at the paramount of all the banks. The RBI's most important goal is to maintain monetary stability (moderate and stable inflation) in India. The RBI uses monetary policy to maintain price stability and an adequate flow of credit. The rates used by RBI to achieve the bank rate, repo rate, reverse repo rate, and the cash reserve ratio. Reducing inflation has been one of the most important goals for some time. Growth and diversification in the banking sector has transcended limits all over the world. In 1991, the Government opened the doors for foreign banks to start their operations in India and provide their wide range of facilities, thereby providing a strong competition to the domestic banks, and helping the customers in availing the best of the services. The Reserve Bank in its bid to move towards the best international banking practices will further sharpen the prudential norms and strengthen its supervisor mechanism. There has been considerable innovation and diversification in the business of major commercial banks. Some of them have engaged in the areas of consumer credit, credit cards, merchant banking, internet and phone banking, leasing, mutual funds, etc. A few banks have already set up subsidiaries for merchant banking, leasing and mutual funds, and many more are in the process of doing so. Some banks have commenced factoring business. **New Generation Banks** Today, banks claim themselves as new generation banks on the basis of certain services they render or the time period they have been formed or bought into existence. But, it should not be done so because, it totally depends on how they function, in terms of implementing strategies, creating and initiating new investment plans managing funds and non-performing assets, looking on to the way how their work force is recruited and retained by analyzing their true caliber and so on. "New generation banks are not just banks who are involved in the implementing a new strategy for the sake of survival, but, banks who are involved in the process of creating a paradigm shift to overcome the ever-changing market requirements and customer preferences by the way they organize the internal and external activities, and initiatives by considering traditional human values and using modern technology. That may result in creating larger revenues by properly investing and managing the funds to create optimum profit and goodwill for the long run of the business can be considered and proved as sustainable". Similarly, ages pass on and so does time, thus organizations who are involved in creating change and surviving the change by implementing innovative and effective strategies to serve the future generations to come can be considered so. Thus, in this process, the bank that excels with its innovative strategy is to be considered as a new generation bank as those strategies used to exhibit customer service and welfare is just a marketing strategy which brings in customers but on a long run it's only the internal affairs and money management strategy that helps a business retain its position in the market. ### 3.2.1 Development in New Generation Banks 1. **Internet** Internet is a networking of computers. In this marketing message can be transferred and received worldwide. The data can be sent and received in any part of the world. In no time, internet facility can do many a job for us. It includes the following: * This net can work as an electronic mailing system. * It can have access to the distant database, which may be a newspaper of a foreign country. * Customers can exchange their ideas through the Internet and can make contact with anyone who is linked with the internet. * On the internet, one can exchange letters, figures / diagrams, and music recording. Internet is a fast-developing net and is of utmost importance for public sector undertaking, Education Institutions, Research Organizations etc. 2. **Society for Worldwide Inter-Bank Financial Telecommunications (SWIFT):** SWIFT, as a co-operative society was formed in May 1973 with 239 participating banks from 15 countries, with its headquarters at Brussels. It started functioning in May 1977. RBI and 27 other public sector banks as well as eight foreign banks in India have obtained the membership of the SWIFT. SWIFT provides have rapid, secure, reliable, and cost-effective mode of transmitting the financial messages worldwide. At present, more than 3000 banks are the members of the network. To cater to the growth in messages, SWIFT was upgraded in the 80s, and this version is called SWIFT-II. Banks in India are hooked to SWIFT-II system. SWIFT is a method of the sophisticated message transmission of international repute. This is highly cost-effective, reliable, and safe means of fund transfer. * This network also facilitates the transfer of messages relating to fixed deposit, interest payment, debit-credit statements, foreign exchange, etc. * This service is available throughout the year, 24 hours a day. * This system ensures against any loss of mutilation against transmission. It is clear from the above benefit of SWIFT that it is very beneficial in effective customer service. SWIFT has extended its range to users like brokers, trust and other agents. 3. **Automated Teller Machine (ATM):** ATM is an electronic machine, which is operated by the customer himself to make deposits, withdrawals, and other financial transactions. ATM is a step in improvement in customer service. ATM facility is available to the customer, 24 hours a day. The customer is issued an ATM card. This is a plastic card, which bears the customer's name. This card is magnetically coded and can be read by this machine. Each cardholder is provided with a secret personal identification number (PIN). When the customer wants to use the card, he has to insert his plastic card in the slot of the machine. After the card is recognized by the machine, the customer enters his personal identification number. After establishing the authentication of the customer, the ATM follows the customer to enter the amount to be withdrawn by him. After processing that transaction and finding sufficient balances in his account, the output slot of ATM give the required cash to him. When the transaction is completed, the ATM ejects the customer's card. Cash withdrawal is the basic service rendered by the bank branches. The cash payment is made by the cashier or teller of the cash dispenses is an alternate to time saving. The operations by this machine are cheaper than manual operations and this machine is cheaper and fast than that of ATM. The customer is provided with a plastic card, which is magnetically coated. After completing the formalities, the machine allows the machine the transactions for required amount. 4. **Electronic clearing service:** In 1994, RBI appointed a committee to review the mechanization in the banks and also to review the electronic clearing service. The committee recommended in its report that electronic clearing service-credit clearing facility should be made available to all corporate bodies/Government institutions for making repetitive low value payment like dividend, interest, refund, salary, pension, or commission. It was also recommended by the committee Electronic Clearing Service-Debit clearing may be introduced for preauthorized debits for payments of utility bills, insurance premium, and installments to leasing and financing companies. RBI has been necessary step to introduce these schemes, initially in Chennai, Mumbai, Calcutta, and New Delhi. 5. **Bank net:** Bank net is a first national level network in India, which was commissioned in February 1991. It is communication network established by RBI on the basis of recommendation of the committee appointed by it under the chairmanship of the executive director T.N.A. Lyre. Bank net has two phases: Bank net-I and Bank net- II. **Areas of Operation and Application of Bank net** * The message of banking transaction can be transferred in the form of codes from the city to the other * Quick settlement of transactions and advices. * Improvement in customer service-withdrawal of funds is possible from any member branch. * Easy transfer of data and other statements to RBI. * Useful in foreign exchange dealings. * Access to SWIFT through Bank net is easily possible. 6. **Chip card:** The customer of the bank is provided with a special type of credit card which bears customer's name, code, etc. The credit amount of the customer account is written on the card with magnetic methods. The computer can read these magnetic spots. When the customer uses this card, the credit amount written on the card starts decreasing. After use of number of times, at one stage, the balance becomes nil on the card. At that juncture, the card is of no use. The customer has to deposit cash in his account for re-use of the card. Again the credit amount is written on the card by magnetic means. 7. **Phone banking:** Customers can now dial up the bank's designed telephone number and he by dialing his ID number will be able to get connectivity to bank's designated computer. The software provided in the machine interactive with the computer asking him to dial the code number of service required by him and suitably answers him. By using Automatic voice recorder (AVR) for simple queries and transactions, and manned phone terminals for complicated queries and transactions, the customer can actually do entire non-cash relating banking on telephone: Anywhere, Anytime. 8. **Tele-banking:** Tele-banking is another innovation, which provided the facility of 24-hour banking to the customer. Tele-banking is based on the voice processing facility available on bank computers. The caller usually a customer calls the bank anytime and can inquire balance in his account or other transaction history. In this system, the computers at the bank are connected to a telephone link with the help of a modem. Voice processing facility provided in the software. This software identifies the voice of caller and provides him suitable reply. Some banks also use telephonic answering machine but this is limited to some brief functions. This is only telephone answering system, and now Tele-banking. Tele-banking is becoming popular since queries at ATMs are now becoming too long. 9. **Internet banking:** Internet banking enables a customer to do banking transactions through the bank's website on the Internet. It is a system of accessing accounts and general information on bank products and services through a computer while sitting in its office or home. This is also called virtual banking. It is more or less bringing the bank to your computer. In traditional banking one has to approach the branch in person, to withdraw cash or deposit a cheque or request a statement of accounts etc. but internet banking has changed the way of banking. Now, everyone can operate all these types of transactions on his computer through the website of the bank. All such transactions are encrypted, using sophisticated multilayered security architecture, including firewalls and filters. One can be rest assured that one’s transactions are secure and confidential. 10. **Mobile banking:** Mobile banking facility is an extension of internet banking. With recent developments in handset designs and mobile software, this is a trend which has already caught focus of majority of the banks. The bank is in association with the cellular service providers offers this service. For this service, mobile phone should either be SMS or WAP enabled. These facilities are available even to those customers with only credit card accounts with the bank. 11. **Any where banking:** With expansion of technology, it is now possible to obtain financial details from the bank from remote locations. Basic transaction can be effected from faraway places. Automated Teller Machines are playing an important role in providing remote services to the customers. Withdrawals from other stations have been possible due to inter-station connectivity of ATMs. The Rangarajan committee had also suggested the installation of ATM at non-branch locations, airports, hotels, Railway stations, Office Computers. Remote Banking is being further extended to the customer's office and home. 12. **Voice Mail:** Talking of answering systems, there are several banks mainly foreign banks now offering very advanced touch tone telephone answering service which route the customer call directly to the department concerned and allow the customer to leave a message for the concerned desk or department, if the person is not available. 13. **Kiosks Information:** Kiosks can now also provide services such as standing order maintenance, providing loan quotes, passbook printing, document scanning, and statement printing. **Technological Development in New Generation Banks** Developments in the field of information technology strongly support the growth and inclusiveness of the banking sector by facilitating inclusive economic growth. IT improves the front end operations with back end operations and helps in bringing down the transaction costs for the customers. Proper usage of Information Technologies and Modern Amenities such as: 1. **ATM, Mobile Banking - SMS, Telephone Banking** 2. **On-line Banking, Internet, Email, Datanet, RBI Net, Nicnet, I-Net, Etc…** 3. **Home Banking, Electronic Payment, Cash Dispensers** 4. **Real-time gross settlement systems (RTGS)** 5. **National Electronic Fund Transfer (NEFT)** 6. **Electronic Clearing System (ECS), Electronic Fund Transfer Systems (EFT)** 7. **Pin Number based Transaction for: ** * **Magnetic Cards - Smart Cards, Credit Cards & Debit Cards. ** * **Teller Machines at the Bank Counters, Etc…** 8. **Offshore Banking / Overseas Banking Services** ### 3.2.2 New Financial Products are Created The financial industry is quite adept at creating new products and successfully marketing them to the masses. Many of these products have been successes that have made money for investors and the financial institutions that offer them. Think mutual funds and exchange-traded funds, for example. However, other products have either been outright disasters or worse, have brought the world to the brink of financial ruin. The prime, or should we say subprime-example of such toxic products would undoubtedly be U.S. mortgage-backed securities, whose implosion circa 2007 – 09 caused a global credit crisis and the Great Recession. **Here are the ten steps involved in the creation of a new financial product.** 1. **Concept of New Financial Products: ** The first step in developing a new financial product is to conceptualize it. The idea for a new product can arise from a variety of sources, such as client demand, internal sales force, or a third party. Exchange-traded funds came about because they did away with the limitations of traditional mutual funds by trading on an exchange, and thus offering instant liquidity and transparency – traits that are of immense appeal to investors. 2. **Product Development:** Coming up with a product idea is one thing, but developing it is another thing altogether since the devil truly is in the details. At this stage, the product development team has to translate the idea into a tangible product that can be sold to the institution’s clientele at a reasonable profit. The development team has to walk a fine line in devising a product that is neither unnecessarily complex (a real risk with financial products), nor is so plain-vanilla that it is easy for the competition to replicate. The clientele for the product is also identified at this stage since most of the subsequent steps are driven by whether the product is meant for a retail audience, or should only be targeted at institutional clients. 3. **Regulatory, Legal Requirements: ** The new product must meet securities regulations mandated by the appropriate authority. For example, Regulatory Notice 12-03 from the Financial Industry Regulatory Authority (FINRA) provides guidance to financial firms about enhanced supervision requirements for complex products. FINRA defines a complex product as one with multiple features that affect its investment returns differently under various scenarios, such as asset-backed securities or structured notes. As regulation is primarily designed to protect retail investors from dubious products or services offered by unscrupulous firms, ensuring that the new product fully complies with all regulations applicable to it is essential for ensuring its success (not to mention avoiding potential embarrassment later). On the legal side, the firm’s legal luminaries will ensure that the intellectual capital invested in the product is protected through the necessary filings. The legal team will also confirm that regulatory requirements pertaining to such issues as product suitability and conflicts of interest have been adhered to. 4. **Operations:** At this stage of a new product’s evolution, the nitty-gritty is hammered out. This is probably the most important step in the entire new product development process since it encompasses all the key details involved with offering the product. This includes developing the forms and paperwork to be filled out by a client, ensuring the transaction will be efficiently executed on the firm’s platform and identifying the steps involved in processing the trade in the back office. It also includes other key elements such as devising risk management and controls to make sure that risks to the firm arising from the new product are mitigated, as well as client reporting, employee training (front office and back office), and supervision. 5. **Registration of Products:** The new product may need to be registered through a prospectus or offering documents with the applicable body such as the Securities Exchange Commission in the U.S., or the provincial securities commissions in Canada. Note that these bodies do not proffer an opinion on the merits of the new product or on its investment appeal. Rather, they ensure that all the “I’s” are dotted and the “t’s” are crossed in the prospectus, and that it contains full disclosure of all the factors required by an investor to make an informed investment decision. 6. **Marketing New Financial Products:** Marketing a new product is vital to ensure its success. This phase also involves educating the client if the product is quite complex. In general, marketing cannot commence or can only be conducted in a limited manner – until such time as approval has been received from the body with whom the prospectus or offering document has been registered. Developing marketing literature such as brochures and presentations that effectively communicate the product’s features and benefits, and formulating a cohesive media strategy, are time-intensive activities that can take weeks to complete. 7. **Distribution of the New Product:** This is another key step since if there is no effective sales force to sell or distribute the product, it will be doomed to failure. The firm or institution has to make a number of important decisions at this stage – who will sell the product, how will they be compensated, what is the level of compensation, and so on. The product’s attributes are essential for determining the right target audience for it. For example, a high-risk, high-reward product or one that is quite complex may be better suited for institutional investors, while a relatively simpler one may be attractive to retail investors. Once the target market has been identified, the right distribution channels can then be put into place. 8. **Product Launch:** Finally, the big day arrives when the product is finally launched, the culmination of months of effort. New financial products are typically launched with a lot of fanfare, right after or during a media blitz to raise product awareness. Some new products may fly off the shelf as soon as they are released, while others may take more time to gain traction. It all depends on which investor need is being met by the new product – income, growth, hedge, or other needs – as well as its risk profile. 9. **Compliance:** The firm’s compliance department will monitor sales of the new product to ensure that it is only being sold to those clients of the firm for whom the product is suitable. Client suitability is a very big issue in the financial industry. An advisor who sells a complex structured note to an 80-year-old with limited means of income will soon receive a visit from a compliance officer and could be in jeopardy of being shown the door. Depending on the specifications of the (new) product being offered, compliance would also be on the lookout for prohibited practices such as front-running or manipulative trading. 10. **Product, profitability review:** In the final stage of a new product’s development cycle, it will be reviewed at set periodic intervals to assess various parameters – product sales versus projections, unexpected challenges, risk management, the product’s contribution to profit, and so on. Depending on the outcome of such periodic reviews, the new product may either turn out to have a short shelf life, or it may be a winner that expands the firm’s portfolio of successful product offerings. **The bottom line** The ten steps outlined above are essential to the creation of a new financial product, although they may not necessarily always be implemented in the order shown. ### 3.2.3 Top Trends in Banking and Financial Services in India The Banking industry and financial institutions are vital sectors of any economy. Development of these two sections of the economy can impact the growth of the country in an incredible way. In the era of "Digital India", the banking and financial services in India have undergone a massive evolution and the phenomenon continues. The change can be attributed to various components like new regulatory policies and customer expectations. However, the one element that has affected banking and financial services the most is technological advancement. The emergence of innovative financial technology has revolutionized financial services in India as well as the banking sector. It has resulted in the introduction and advancement of several technology trends that have contributed to the radical transformation, growth, and advancement of these industries. The alliance between the innovative technologies of the financial sector and banking services has changed the conventional systems of handling money, and this collaboration is expected to create a massive shift with emerging trends in financial services. The rise of Fintech companies, internet banking, and mobile banking are some of the classic examples of emerging trends in the banking sector and financial services. In addition to the betterment of traditional systems, these banking and financial services industry trends are a few steps toward creating a cashless society, complete digital transformation, and the rise of Fintech. In this time of change, the only thing that is constant is change. **Few trends in banking and financial services in India that are changing the entire scenario** 1. **Digitization:** With the rapid growth of digital technology, it became imperative for banking and financial services in India to keep up with the changes and innovate digital solutions for the tech-savvy customers. Besides the financial institutions, insurance, healthcare, retail, trade, and commerce are some of the major industries that are experiencing the enormous digital shift. To stay competitive, it is necessary for the banking and financial industry to take the leap on the digital bandwagon. In India, it all began not earlier than the 1980s when the banking sector introduced the use of information technology to perform basic functions like customer service, book-keeping, and auditing. Soon, Core Banking Solutions were adopted to enhance customer experience. However, the transformation began in the 1990s during the time of liberalization, when the Indian economy exposed itself to the global market. The banking sector opened itself for private and international banks, which is the prime reason for technological changes in the banking sector. Today, banks and financial institutions have benefitted in many ways by adopting newer technologies. The shift from conventional to convenience banking is incredible. Modern trends in banking system make it easier, simpler, paperless, signatureless and branchless with various features like IMPS (Immediate Payment Service), RTGS (Real Time Gross Settlement), NEFT (National Electronic Funds Transfer), Online Banking, and Telebanking. Digitization has created the comfort of "anywhere and anytime banking." It has resulted in the reduced cost of various banking procedures, improved revenue generation, and reduced human error. Along with increased customer satisfaction, it has enabled the customers creating personalized solutions for their investment plans and improve the overall banking experience. 2. **Enhanced mobile banking:** Mobile banking is one of the most dominant current trends in banking systems. As per the definition, it is the use of a smartphone to perform various banking procedures like checking account balance, fund transfer, and bill payments, without the need of visiting the branch. This trend has taken over the traditional banking systems. In the coming years, mobile banking is expected to become even more efficient and effortless to keep up with the customer demands. Mobile banking future trends hint at the acquisition of IoT and Voice-Enabled Payment Services to become the reality of tomorrow. These voice-enabled services can be found in smart televisions, smart cars, smart homes, and smart everything. Top industry leaders are collaborating to adopt IoT-connected networks to create mobile banking technologies that require users' voice to operate. 3. **UPI (Unified Payments Interface):** UPI or Unified Payments Interface has changed the way payments are made. It is a real-time payment system that enables instant inter-bank transactions with the use of a mobile platform. In India, this payment system is considered the future of retail banking. It is one of the fastest and most secure payment gateways that is developed by National Payments Corporation of India and regulated by the Reserve Bank of India. The year 2016 saw the launch of this revolutionary transactions system. This system makes funds transfer available 24 hours, 365 days unlike other internet banking systems. There are approximately 39 apps and more than 50 banks supporting the transaction system. In the post-demonetization India, this system played a significant role. In the future, with the help of UPI, banking is expected to become more "open." 4. **Block chain:** Blockchain is the new kid on the block and the latest buzzword. The technology that works on the principles of computer science, data structures and cryptography and is the core component of cryptocurrency, is said to be the future of banking and financial services globally. Blockchain uses technology to create blocks to process, verify, and record transactions, without the ability to modify it. NITI Aayog is creating IndiaChain, India's largest blockchain network, which is expected to revolutionize several industries, reduce the chances of fraud, enhance transparency, speed up the transaction process, lower human intervention, and create an unhackable database. Several aspects of banking and financial services like payments, clearance and settlement systems, stock exchanges and share markets, trade finance, and lending are predicted to be impacted. With its strenuous design, blockchain technology is a force to be reckoned with. 5. **Artificial intelligence robots:** Several private and nationalized banks in India have started to adopt chatbots or Artificial intelligence robots for assistance in customer support services. For now, the use of this technology is at a nascent stage and evolution of these chatbots is not too far away. Usage of chatbots is among the many emerging trends in the Indian banking sector that is expected to grow. More chatbots with the higher level of intelligence are forecasted to be adopted by the banks and financial institutions for improved customer interaction personalized solutions. The technology will alleviate the chances of human error and create accurate solutions for the customers. Also, it can recognize fraudulent behavior, collate surveys and feedback, and assist in financial decisions. 6. **The rise of fintech companies:** Previously, banks considered Fintech companies a disrupting force. However, with the changing trends in the financial services sector in India, fintech companies have become an important part of the sector. The industry has emerged as a significant part of the ecosystem. With the use of financial technology, these companies aim to surpass the traditional methods of finance. In the past few decades, massive investment has been made in these companies and it has emerged into a multi-billion-dollar industry globally. Fintech companies and fintech apps have changed the way financial solutions are provided to the customers. Besides easy access to financial services, fintech companies have led to a massive improvement in services, customer experience, and reduced the price paid. In India, the dynamic transformation has been brought upon by several important elements like fintech startups, established financial institutions, initiatives like “Start-Up India” by Government of India, incubators, investors, and accelerators. According to a report by National Association of Software and Services Companies (NASSCOM), the fintech services market is expected to grow by 1.7 times into an \$8 billion market by 2020. 7. **Digital-Only Banks:** It is a recent trend in the Indian financial system and cannot be ignored. With the entire banking and financial services industry jumping to digital channels, digital-only banks have emerged to create paperless and branchless banking systems. This is a new breed of banking institutions that are overtaking the traditional models rapidly. These banks provide banking facilities only through various IT platforms that can be accessed on mobile, computers, and tablets. It provides most of the basic services in the most simplified manner and gives access to real-time data. The growing popularity of these banks is said to be a real threat to traditional banks. ICICI Pockets is India's first digital-only bank. These banks are attractive to the customers because of their cost-effective operating models. At the same time, though virtually, they provide high-speed banking services at very low transaction fees. In today's fast lane life, these banks suit the customer needs because they alleviate the need of visiting the bank and standing in a queue. 8. **Cloud Banking:** Cloud technology has taken the world by storm. It seems the technology will soon find its way in the banking and financial services sector in India. Cloud computing will improve and organize banking and financial activities. Use of cloud-based technology means improved flexibility and scalability, increased efficiency, easier integration of newer technologies and applications, faster services and solutions, and improved data security. In addition, the banks will not have to invest in expensive hardware and software, as updating the information is easier on cloud-based models. 9. **Biometrics:** Essentially for security reasons, a Biometric Authentication system is changing the national identity policies, and the impact is expected to be widespread. Banking and financial services are just one of the many other industries that will be experiencing the impact. With a combination of encryption technology and OTPs, biometric authentication is forecasted to create a highly-secure database protecting it from leaks and hackers attempts. Financial services in India are exploring the potential of this powerful technology to ensure sophisticated security to customers' account and capital. 10. **Wearables:** With smartwatch technology, the banking and financial services technology is aiming to create wearables for retail banking customers and provide more control and easy access to the data. Wearables have changed the way we perform daily activities. Therefore, this technology is anticipated to be the future retail banking trend by providing major banking services with just a click on a user-friendly interface on their wearable device. These are some of the recent trends in the banking and financial sector of India, and all these new technologies are predicted to reshape the industry of business and money. The future is going to bring upon a revolution of sorts with historical changes in traditional models. The massive shift in the landscape has few challenges. Nonetheless, the customers are open to banking innovations, and the government is showing great support with schemes like "Jan Dhan Yojana," which aims at proving a bank account to every citizen. Meanwhile, the competition from the foreign and private sector banks have strained the government regulators, nationalized banks and financial institutions to adopt new technology in order to stay relevant in the race. ### 3.2.4 Recent Technological Developments in Indian Banks In recent years, the Reserve Bank has endeavored to improve the efficiency of the financial system by ensuring the presence of a safe, secure, and effective payment and settlement system. In the process, apart from performing regulatory and oversight functions, the Reserve Bank has also played an important role in promoting the system's functionality and modernization on an ongoing basis. The consolidation of the existing payment systems revolves around strengthening computerized cheque clearing, and expanding the reach of Electronic Clearing Services (ECS) and Electronic Funds Transfer (EFT). The critical elements of the developmental strategy are the opening of new clearing houses, interconnection of clearing houses through the Indian Financial Network (INFINET), and the development of a Real Time Gross Settlement (RTGS) System, a Centralized Funds Management System (CFMS), a Negotiated Dealing System (NDS), and the Structured Financial Messaging System (SFMS). Similarly, integration of the various payment products with the systems of individual banks has been another thrust area. **ATM:** An automated teller machine (ATM) or automatic banking machine (ABM) is a computerized telecommunications device that provides the clients of a financial institution with access to financial transactions in a public space without the need for a cashier, human clerk or bank teller. On most modern ATMs, the customer is identified by inserting a plastic ATM card with a magnetic stripe, or a plastic smart card with a chip that contains a unique card number and some security information such as an expiration date or CVVC (CVV). Authentication is provided by the customer entering a personal identification number (PIN). Using an ATM, customers can access their bank accounts in order to make cash withdrawals (or credit card cash advances) and check their account balances as well as purchase cell phone prepaid credit. If the currency being withdrawn from the ATM is different from that which the bank account is denominated in (e.g.: withdrawing Japanese Yen from a bank account containing US Dollars), the money will be converted at a wholesale exchange rate. Thus, ATMs often provide the best possible exchange rate for foreign travelers and are heavily used for this purpose as well. ATMs are known by various other names including Automated Transaction Machine, automated banking machine, cash point (in Britain), money machine, bank machine, cash machine, hole-in-the-wall, Bancomat (in various countries in Europe and Russia), Multibank (after a registered trade mark, in Portugal), and Any Time Money (in India). **Debit Card:** A debit card (also known as a bank card or check card) is a plastic card that provides an alternative payment method to cash when making purchases. Functionally, it can be called an electronic cheque, as the funds are withdrawn directly from either the bank account or from the remaining balance on the card. In some cases, the cards are designed exclusively for use on the Internet, and so there is no physical card. The use of debit cards has become widespread in many countries and has overtaken the cheque and in some instances cash transactions by volume. Like credit cards, debit cards are used widely for telephone and Internet purchases, and unlike credit cards the funds are transferred from the bearer's bank account instead of having the bearer to pay back on a later date. Debit cards may also allow for instant withdrawal of cash, acting as the ATM card for withdrawing cash and as a cheque guarantee card. Merchants may also offer "cash back"/ "cash out" facilities to customers, where a customer can withdraw cash along with their purchase. **Credit Card:** A credit card is part of a system of payments named after the small plastic card issued to users of the system. It is a card entitling its holder to buy goods and services based on the holder's promise to pay for these goods and services. The issuer of the card grants a line of credit to the consumer (or the user) from which the user can borrow money for payment to a merchant, or as a cash advance to the user. Usage of the term "credit card" to imply a credit card account is a metonym. A credit card is different from a charge card, where a charge card requires the balance to be paid in full each month. In contrast, credit cards allow the consumers to 'revolve' their balance, at the cost of having interest charged. Most credit cards are issued by local banks or credit unions, and are the shape and size specified by the ISO/IEC 7810 standard as ID-1. This is defined as 85.60 x 53.98 mm in size. **How Credit Cards Work?** Credit cards are issued after an account has been approved by the credit provider, after which cardholders can use it to make purchases at merchants accepting that card. When a purchase is made, the credit card user agrees to pay the card issuer. The cardholder indicates consent to pay by signing a receipt with a record of the card details and indicating the amount to be paid, or by entering a personal identification number (PIN). Also, many merchants now accept verbal authorizations via telephone, and electronic authorization using the Internet, known as a 'Card/Cardholder Not